In 2014, HM Treasury asked the Law Commission to review the Victorian-era bills of sale Acts. This legislation enables consumers and small businesses to borrow money using their goods as security, while allowing borrowers to retain possession of the goods. In recent years, bills of sale have been most commonly used in relation to logbook loans, which are loans that are secured on a consumer’s vehicle.
The desire for a comprehensive review reflected the Government’s significant concerns about consumer detriment in the logbook loan market, in particular the lack of protections available to consumers who took out a logbook loan, as well as innocent third party purchasers who unknowingly buy a vehicle that is subject to a logbook loan.
In 2014, the Government also fundamentally reformed the consumer credit market, by transferring regulation from the Office of Fair Trading to the Financial Conduct Authority (FCA). This more robust regulatory system is helping to deliver the Government’s vision for a well-functioning and sustainable consumer credit market which is able to meet consumers’ needs.
The Government have ensured that the FCA has strong powers to protect consumers, including the power to levy unlimited fines and require firms to compensate consumers who have lost out, where it finds wrongdoing. The FCA assesses every firm’s fitness to trade as part of the authorisation process, and it has put in place binding standards on firms. It proactively monitors the market, focusing on the areas most likely to cause consumer harm, and it has a broad enforcement toolkit to punish breaches of its rules. This has ensured that firms treat consumers fairly and consumers are better protected from sharp practice by firms.
However, the FCA cannot tackle the inadequacies of the bills of sale Acts, which mean that there are still significant gaps in the protection available for consumers who use logbook loans and third party purchasers.
The Law Commission’s final report and recommendations to reform the bills of sale Acts were published in September 2016, and the Government have now had the opportunity to consider the report fully.
The Government are grateful to the Law Commission for a report which is exhaustive and careful in its treatment of this complex matter, and which makes detailed recommendations for reform.
The Government agree with the Law Commission’s conclusion that consumers and unincorporated businesses should continue to be able to use their existing goods as security while retaining possession of them but that the bills of sale Acts no longer provide an appropriate legal framework and should be reformed. As well as accepting the overarching thrust of the recommendations, the Government welcome many of the detailed suggestions for reform. There are, however, some recommendations where the Government’s acceptance is qualified. We will want to reflect further on these points, and take discussions forward with the Law Commission, stakeholders and other Government Departments.
This is an opportunity for the Government to continue their work in creating a modern, fit-for-purpose consumer credit regime. The recommendations will improve outcomes for consumers by simplifying the information that is presented to them and providing increased protections if they get into financial difficulty. The recommendations will also remove unnecessary burdens for firms, and create new opportunities for small, unincorporated businesses to access finance.
Copies of the Government’s full response to the report’s recommendations will be placed in the Libraries of both Houses once these have been fully considered and agreed with the Law Commission.
The Government are keen that this work should move forward, and have agreed to support the Law Commission in drafting primary legislation to enact the necessary reforms. The Government will seek to use the special parliamentary procedure which is available for Bills that implement uncontroversial Law Commission recommendations, subject to agreement with the usual channels, and to bring forward the legislation when parliamentary time allows.
The Law Commission’s final report is available at: