Anyone buying a secondhand car privately is in danger of having it repossessed without warning by finance companies under archaic Victorian legislation, the Law Commission has warned.
The number of so-called logbook loans, which allow owners to borrow money using their car as collateral, has soared over the past decade.
Consumers should be protected from the risk of losing vehicles by a new goods mortgages act to replace the outdated laws, according to the legal reform body.
The loans are regulated by the 1878 Bills of Sale Act and the 1882 Bills of Sale Act (1878) Amendment Act.
Logbook loans have to be registered at the high court, but those buying cars privately are unlikely to be able to check whether the vehicle is subject to such an order. If the original owner ceases payments, the car can be repossessed by the lender.
The use of bills of sale, which allow people to use goods that they own as security, increased from less than 3,000 in 2001 to more than 37,000 in 2015, the Law Commission said. They are now mostly utilised for logbook loans.
Stephen Lewis, the law commissioner for commercial and common law, said: Borrowers are increasingly turning to logbook loans to raise cash, but many who default rapidly find themselves out of pocket and their vehicle repossessed. People buying secondhand vehicles understandably expect the law to protect them, but it is out of date and out of step with other consumer legislation.
It is high time the law was reformed to bring protections to logbook loan borrowers and the unwitting purchasers who, in all good faith, buy secondhand vehicles that are still subject to these widely used and unfair loans.
In one case highlighted by Citizens Advice, a customer bought a van advertised on Auto Trader that went missing shortly afterwards. It was reported as stolen, but police informed the purchaser that the vehicle had been repossessed because it had a logbook loan taken out by the previous owner. The client lost their money.
The Law Commission recommended that borrowers and buyers should be given similar protections to those offered by hire purchase law. That would involve borrowers being given more time to pay.
Any person temporarily unable to pay, who has repaid more than one-third of the loan, should be able to stop lenders repossessing the vehicle without a court order, the commission has proposed. Those who cannot make any more payments should have the right to hand the car back to the lender, ending their liability for the remainder of the loan.
Under the recommendations, secondhand vehicle buyers who act in good faith, without knowing that their purchases are subject to a logbook loan, would not be liable for the repayments.
News Source TheGuardianNews