New 'Goods Mortgages' Bill

Fairer for borrowers and purchasers of used goods, and more straightforward for lenders?

The Law Commission, the non-political independent body set up by Parliament to keep all the law of England and Wales under review, has published a draft Goods Mortgages Bill. The intention is to enable individuals to use goods they own, such as cars, as security for their debts, while better protecting purchasers of those goods.

Currently, people can only use goods they own as security while retaining possession of those goods by following the requirements of the Victorian ‘Bills of Sale’ Acts. These only allow individuals to grant security over personal chattels within rigidly-defined rules, including that documents, and amendments to documents, must be registered at the High Court.

The Law Commission points out that bills of sale have grown from under 3,000 in 2001 to over 37,000 in 2015. They are mostly used for logbook loans, which are a way for borrowers to use their car or van as security for a loan. If payments are missed, however, borrowers can face swift repossession. People who buy second hand cars in good faith can also unexpectedly find themselves losing the vehicle, or having to pay off someone else’s loan.

The draft Bill is intended to make goods mortgages fairer to borrowers, and purchasers of used goods, by:

  • Ensuring borrowers are given adequate warnings at the outset of the agreement.
  • Introducing a new requirement for lenders to obtain a court order before seizing goods, where the borrower has paid one third of the loan and wants to challenge the intended repossession.
  • Allowing borrowers to end their agreement by handing back the goods to the lender – instead of paying the rest of the loan.
  • Protecting 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.

While logbook loans currently represent about 90% of bills of sale, goods mortgages may offer opportunities for other sorts of personal assets to be used as security for loans, such as artworks. If you think goods mortgages might be useful to your business and would like to find out more, please contact me. I am based at our Chelmsford office and can be reached on 01245 453817 or david.wisbey@birkettlong.co.uk.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.