When it comes to buying a second-hand car, it goes without saying that you should always carry out due diligence on the condition of the vehicle, its service history, potential sell-on value, etc.
But how about doing your homework on the seller themselves? Seems like a strange thing to suggest as there is very little way of verifying somebody’s credibility simply from buying a car from them. Unbeknown to you, however, is that this person may have taken out a loan against the value of the car and is still paying it back. You now find yourself in possession of a new car and a debt you’re responsible for.
Bills of sale, where people take out loans against items they own whilst still keeping them, have grown significantly in the past 15 years or so, going from 3,000 in 2001 to over 37,500 in 2015. The vast majority of these (approximately 90%) are against cars, known as logbook loans, but a legal loophole allows any money left unpaid to be transferred onto the new owner. This can potentially lead to the vehicle being repossessed. New proposed legislation is set to change all of this.
Following recommendations by the Law Commission in September 2016, Economic Secretary to the Treasury Simon Kirby has confirmed planned changes to the law to protect both buyers and borrowers. The protection offered would be similar to those offered by hire-purchase law:
- Borrowers would have more time to pay – a borrower who is temporarily unable to pay but has already repaid more than one third of the loan could stop lenders repossessing the vehicle without a court order.
- Borrowers could end the agreement – a borrower who cannot make any more payments would have the right to hand the car back to the lender and not be liable for the remainder of the loan.
- Buyers of second-hand vehicles would be protected – where a private individual buys a vehicle in good faith and without knowing that it is subject to a logbook loan, they would become the owner of the vehicle and would not be liable for the loan.
Stephen Lewis, Law Commissioner for Commercial and Common Law, welcomes these new proposals. “This is great news for car-buyers. Every year many were unwittingly purchasing second hand-vehicles at risk of repossession due to unfair logbook loans. The current law doesn’t give them the protection they deserve and our recommendations for changes are about putting people back in the driving seat when it comes to logbook loans. I’m pleased that the Treasury has agreed and acted swiftly to put the brake on this out of date legislation. We’re drafting a bill which we hope will be introduced into Parliament next autumn to change the law by 2019.”
The out of date legislation Stephen refers to is the Bills of Sale Act 1882, so it’s fair to say it’s due an update. Until the Bill is passed of course, people in the market for a second-hand car will need to continue to take heed of the Latin term Caveat emptor: let the buyer beware.