Goods Mortgages - consumer protection enhanced?
- AuthorThomas Emmett
Bills of Sale are a way in which individuals can use their goods, which they already own, as security for loans or other obligations whilst retaining possession of those goods.
The main type of Bill used is a Security Bill (also known as a Conditional Bill), which are typically used to take security over goods to secure repayment of a loan. In 2016, the Law Commission published a report setting out its recommendations to reform the law relating to Bills of Sale, which should be of no particular surprise considering that the law governing them is contained in Acts of Parliament from 1878 and 1882. One of the recommendations by the Law Commission is to change the phrase “Bill of Sale” to “Goods Mortgage”. For loans secured over vehicles, the term suggested is “Vehicle Mortgage”. These terms will be used throughout this article.
Moving to the present day, a draft Goods Mortgages bill has been published for consultation, with a view of passing the bill in its final form through Parliament, ready for implementation into law by 2019. Whilst this may seem a while off, the ramifications of the change in the law should be taken into consideration now, so that businesses can prepare for such changes for when the law comes into force.
If the bill were to be implemented into English law today, businesses would need to be aware of the following key changes:
1. Lenders would be unable to take possession of goods subject to Goods Mortgages unless (amongst other things):
- a borrower has defaulted on their repayments;
- a borrower has failed to comply with a term of the Goods Mortgage relating to maintenance or insurance of the goods;
- a borrower has moved goods in breach of a term of a Goods Mortgage; and
- a borrower has offered the goods for sale without the consent of the lender.
2. The legal requirements for Goods Mortgage documents will be simpler than those for Security Bills, making it easier for a borrower to understand their terms. The documents will need to be in writing and signed by the borrower. The exact legal requirements for the contents of the documents is not suggested in the draft bill, but it is likely that a Goods Mortgage document will need to include the date of the Mortgage, name and address of the borrower, the obligation secured by the Goods Mortgage and a specific description of the goods (amongst other things).
3. Innocent purchasers of goods that are subject to a Goods Mortgage, who purchase those goods in good faith but are not aware that the goods are subject to such a mortgage, would be protected where they are not currently. Under the draft bill, an innocent purchaser would acquire ownership of the goods.
In relation to number 3 above, for lenders a potential concern is whether a fraudulent borrower could pass good title to goods and defeat the lender’s Goods Mortgage. However, it is worth noting that nothing in the bill prevents a lender from taking security by way of a pledge from an individual where the lender has possession of the goods.
If you would like to discuss any Bill of Sale you are currently a party to, or would like more information about how the suggested changes to the law could affect your business, please contact Thomas Emmett based at our Basildon Office on 01245 453847 or email email@example.com.