The department for business innovation and skills (BIS) is consulting on plans to ban a form of secured borrowing known as “logbook loans” calling it an “archaic” and expensive method of borrowing.
The loans are usually secured against the value of cars and allow the lender to repossess without a court order and more than 1,000 people have complained to the Office of Fair Trading about these loans in the past four years.
“They were developed in the days of Charles Dickens and don’t meet 21st century consumer standards,” said consumer minister Kevin Brennan.
David Harker, chief executive of Citizens Advice said it was high time they were banned.
“There is no consumer protection and people can end up in serious debt and risk losing their car and even their home when they borrow money this way.
“CAB advisers have seen cases where borrowers have been subject to unfair or misleading sales practices.
The concept of the logbook loans stems from Victorian legislation – the Bills of Sale Act in 1878 and its amendment in 1882. The item on which the loan is secured can be seized and sold if the borrower defaults and the borrower can still be pursued if there is any shortfall when the item is sold.
Nearly 40,000 such loans were made in the year to March 2009 for sums amounting to £30m.
Source: BBC News