Is The Car Industry Set For Growth With Goods Mortgages?

Finance has long played an important part in driving vehicles out of the showroom and onto the tarmac. So, could proposed Law Commission reforms on how individuals can use cars as security for loans and other obligations inject further life into the automotive sector and to those who provide finance within it?

Older than the first Benz

The current law on how individuals can create security for loans pre-dates the first two seater motor vehicle completed by Carl Benz in 1885. So, it is little wonder that existing 'Bills of Sale' legislation is widely seen as out of date and due for a much needed overhaul. For the automotive sector, the two aspects of the existing regime that have received the most criticism are:

Purchasers are at risk of having their vehicle repossessed, if a previous 'logbook loan' taken out to finance the purchase of that vehicle has not been fully repaid; and Borrowers going into minor default under a logbook loan risk seeing their vehicles repossessed without a court order; that's even where a missed payment was just a blip. How might the new proposals help the automotive sector?

The Law Commission is proposing a new 'Goods Mortgages Bill' which could address these flaws in the following ways.

A new registration system is proposed, which would have the potential to marry up vehicle registration information held by the DVLA, with details on a 'goods mortgage register'. That could in turn be linked to vehicle identification numbers or other unique identifiers (for example, on board computer codes) to provide a robust record of whether a vehicle is currently subject to outstanding security granted by an individual. Commercial purchasers could then search the 'goods mortgage register' to check whether any security has been taken over a vehicle owned by an individual. Private individual purchasers would be protected on their purchases, as long as they act in good faith and don't have actual notice of the mortgage. And vehicle financiers could also check the register to see whether there is any security granted by individuals against a vehicle that they propose to fund. That is also backed up by a responsibility on those who have granted a goods mortgage, to disclose its existence. Otherwise they may face up to 10 years in jail for fraud. Possession rights will broadly be unchanged. However, there will be some new restrictions on when financiers can take possession of vehicles and on when they can enter premises without...