Government shelves Goods Mortgages Bill

The Government has announced that it will not bring forward the Law Commission’s Goods Mortgages Bill.

The Bill had been announced in last year’s Queen’s Speech and would have replaced the Victorian‑era Bills of Sale Acts – bringing greater protections to those who had taken out or who had unwittingly purchased cars with so-called “logbook loans”.

But following additional consultation, the Government has said it will not bring forward reform in the area in the immediate future.

Law Commissioner Stephen Lewis said:

“It’s disappointing not to see the Goods Mortgages Bill being brought onto the statute book. The current law doesn’t provide adequate consumer protection. Businesses, lenders and consumer groups strongly agreed our reforms would have made a vast improvement.

“However, we understand that there are enormous pressures on Parliamentary time at the moment.

“We will continue to work with the Government to explore ways in which we can bring forward reform in this area in the future.”

Bills of sale – figures and current law

Bills of sale are a way for people to use their goods as security for loans while retaining possession of those goods. They are mostly used for logbook loans (loans against cars), a high-cost form of credit regulated by the Financial Conduct Authority.

Research shows that bills of sale are used to secure amounts typically between £100 to £3,500, for a term of between six months and three years. Bills of sale have grown from 3,000 in 2001 to about 37,000 in 2015 and 2016, with a peak of 52,000 in 2014. The vast majority are taken out by borrowers who have difficulty accessing other forms of credit.

Bills of sale are fraught with problems, both legally and practically. They:

• allow goods to be repossessed on a single default, with little protection for borrowers.
• give no protection at all to purchasers who unwittingly buy goods subject to bills of sale.
• are unnecessarily costly and impose burdensome formalities on lenders.
• are inflexible and stifle more complex commercial transactions such as securing guarantees and revolving credit, even when the individual is a business or high net worth.

Benefits of goods mortgages

The proposed Goods Mortgages Bill:

• Ensures borrowers are given adequate warnings at the outset of the agreement.
• Increases protection for borrowers by introducing a new requirement for lenders to obtain a court order before seizing goods. This would occur where the borrower has paid one third of the loan and wants to challenge the intended repossession.
• Allows borrowers to end their agreement by handing back the goods to the lender – instead of paying the rest of the loan.
• Protects buyers of second-hand vehicles – purchasers who unwittingly bought a car with an outstanding logbook loan would not be liable and would keep the car.
• Helps unincorporated businesses raise finance against their assets, by making lending cheaper and more straightforward.

The Law Commission’s special procedure

The Law Commission has a special procedure which allows uncontroversial bills to be introduced into Parliament. “Uncontroversial” means that the bill is broadly supported by all categories of interested stakeholders. It does not require unanimity of opinion.

Law Commission bills are thoroughly scrutinised in Committee so the special procedure is not “expedited” as such. However, it alleviates pressures on parliamentary time by reducing the time that Law Commission bills spend on the floor of the House.

Based on our previous experience, and responses to the Government’s consultation, we consider that the draft Goods Mortgages Bill is suitable for the special procedure and could be introduced in Parliament in the future.