Bill of Sale Lending: Reforming a ‘Toxic’ Form of Credit
| Author | Gerald Swaby,Paul Richards,Rebecca Kelly |
| Date | 01 March 2018 |
| Published date | 01 March 2018 |
| DOI | http://doi.org/10.1111/1468-2230.12330 |
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LEGISLATION
Bill of Sale Lending: Reforming a ‘Toxic’ Form
of Credit
Gerald Swaby, Rebecca Kelly and Paul Richards∗
The Bills of Sale Acts wereenacted in Victor ian times as a form of secured credit whereby‘goods’
owned by a borrower could be assigned under the bill of sale to a lender who would have title
to the goods transferred to him. The lender would then allow the borrower to retain possession
of the goods in exchange for instalment payments with interest. In the twenty-first century
these bills are most commonly used as ‘logbook loans’ for vehicles with extortionate interest
rates and very little protection for individual consumers. This article examines the operational
background to the Bill of Sale Acts. It focuses upon particular concerns for consumers and
businesses and provides critique of the registration process before examining the proposals and
consultations for reform currently before the Law Commission.
Bills of sale allow individuals in the UK to use ‘goods’1that they own as security
for a loan, while retaining possession of those goods, so-called security bills of
sale. They represent an archaic regime created by Victorian legislation to allow
Victorian individuals to borrow against then every-day items such as pots and
pans, antiques, paintings and indeed any articles capable of complete transfer
by delivery.2On the face of things this appears to be a simple arrangement but
underlying this there is a highly complex regime that is little understood by both
debtors and lenders.3Proposals for large scale reform by the Law Commission
and the government decision to introduce a new Goods Mortgages Act by
2019 fit for purpose in the 21st century are therefore long overdue to reform
this area of law.4
∗Gerald Swaby and Rebecca Kelly are Senior Lecturers in the School of Law, University of Hud-
dersfield, Paul Richards is former Head of Law School at University of Huddersfield. We would like
to thank the MLR peer reviewers for their help and critique of this article in draft. Any errors or
omissions remain our own.
1 Technically the word ‘goods’ should refer to ‘chattels’, but this will be referred to as ‘goods’ for
the purpose of this article’s main text.
2See,J.Weir,The Law of Bills of Sale (Jorden & Sons, 1896) 23 and the example of a bill of
sale extending to ‘all and every the household goods, furniture, plate, linen, china, books,
stock-in-trade, brewing utensils and all the other effects’ of the grantor.
3 Bills of Sale Act 1878 and the Bills of Sale (1878) Amendment Act 1882.
4 The call for reform in this area has been longstanding. See, G. Crowther, Report of the Committee
on Consumer Credit Vol 1 Cmnd 4596 (1971) 179 4596 (Crowther report); A. L. Diamond, A
Review of Security Interests in Property (London: HMSO, 1989) 92, para 18.1.8; Law Commission,
Company Security Interests Law Com No 296 (2005). See also, the Secured Transaction Law Re-
form Project contribution to this discussion at https://secur edtransactionslawreformproject.org/
discussion-papers/https://secur edtransactionslawreformproject.org/discussion-papers/ (last ac-
cessed 19 July 2017).
C2018 The Author. The Modern Law Review C2018The Modern Law Review Limited. (2018) 81(2) MLR 308–336
Published by John Wiley& Sons Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA
Gerald Swaby, Rebecca Kelly and Paul Richards
Today bills of sale are often used in relation to motor vehicles, as such con-
tracts are often referred to as ‘logbook loans’.5The manifestly unfair treatment
of consumers in these contracts has received considerable recent media cover-
age. The unfair nature of such contracts extends both to the initial borrowers
and also to third party purchasers buying second-hand motor vehicles that are
still subject to the original loan. It is important to under stand that third party
purchasers of motor vehicles subject to a logbook loan fall outside of the pro-
tection provided by Part III of the Hire Purchase Act 1964. Section 27 of Part
III provides that if the borrower disposes of a motor vehicle subject to a hire
purchase agreement or a conditional sale agreement before the property in the
motor vehicle has become vested in the borrower, then the disposition to a
private purchaser of the vehicle in good faith and without notice of the hire
purchase or conditional sale agreement takes effect as if the lender’s title to the
vehicle has been vested in the borrower immediately prior to the disposition.
Non-private purchasers, such as car dealers, do not have any such protection.
Such was the level of concern generated by the Citizens Advice Bureau in
its analysis of the market, that its Chief Executive has labelled some lenders as
‘predatory’ and this form of credit as ‘toxic’. Borrowers using the loans are often
in acute financial strife, accept high cost arrangements and may not understand
the out-dated language which govern bills of sale. Furthermore, the lender’s
ability to seize a vehicle without a court order when, for example, the borrower
falls behind on payments, means debt collection practices are poor and even
threatening.
These concerns are heightened by the fact that the use of such bills has
exploded in number from approximately 3,000 in 2001 to over 30,000 in
2016, which mirrors payday loans before regulation reformed that area. Typical
annual percentage rates are 400 per cent or more, making it an expensive form
of credit.6The position is exacerbated by the fact that 37 per cent of people with
logbook loans also had one or more payday loans.7Addressing the widespread
concerns relating to irresponsible lending and vehicles being readily seized has
become part of a vital response to the wider issues surrounding consumer
indebtedness.
Arguably the Law Commission’s recommendations for reform would im-
prove the terminology for borrowers, allow them greater redress through the
courts and also give a right to end the agreement early and hand the vehicle
back. Private purchasers of a motor vehicle in good faith and without knowl-
edge of the logbook loan agreement are entitled to take free of the lender’s
title to the vehicle. While introducing new safeguards for consumers, the new
regime would at the same time potentially expand the market by simplifying
the complex arrangements for the registration of documents by a lender and
mitigating the consequences to a lender if the correct process is not followed.
5 The use of the phrase ‘logbook loans’ is not a legal one. It refers to the surrender ing of the
vehicle registration document by the borrower to the lender. This has no legal effect and is
simply symbolic.
6 The Money Advice Service at https://www.moneyadviceservice.org.uk/en/articles/logbook-
loans (last accessed 14 August 2017).
7 Law Commission, Bills of Sale: A Consultation Law Com No 225 (2015) para 2.16.
C2018 The Author. The Modern Law Review C2018The Modern Law Review Limited.
(2018) 81(2) MLR 308–336 309
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