Step Aside, Payday Loans: There's an Old Kid in Town

You could be forgiven for thinking that the Bills of Sale Acts of 1878 and 1882 would have been repealed by now, or could never apply to you, over 130 years after they were drafted. But if you've ever purchased a second-hand car (or, if you're lucky enough to be purchasing works of art or borrowing against your gold coins), you could be wrong.

Bills of sale may be granted by individuals or unincorporated businesses (such as partnerships) as a form of security in relation to moveable goods which the individual or unincorporated business sells, while retaining possession. This is a conditional bill of sale, whereby the borrower may continue to use the sold goods, unlike pawnbroking or pledging where the lender would take possession of the item in question. Hotels use bills of sale to secure financing against their furniture, and individuals or unincorporated businesses can use them to register a general assignment of their book debts.

Originating hundreds of years ago, and becoming popular when the Victorian middle class sought a means to raise funds on the basis of non-land collateral, bills of sale used to be a common form of security granted by individuals and sole traders. Since then, because of their shortcomings, they have not been heavily used until recently (with some exceptions in the case of fine wine, art, gemstones and gold ingots) to secure financing. In the past few years, there has been a marked increase in the use of bills of sale, specifically to gain finance against the security of a vehicle (popularly known as a 'logbook loan').

According to the Law Commission's consultation paper no. 225 (Consultation Paper), 2,840 bills of sale were registered in 2001, rising to 52,483 in 2014. Of these, 47,723 were in relation to logbook loans. Although general assignments of the book debts of an individual or an unincorporated business are also required to be registered as though they were bills of sale, there were only 97 such registrations in the same period. Given the exponential growth in this area, this piece focuses on logbook loans.

You will have seen the adverts, or heard the jingles on the radio. No credit checks! Apply online! Any roadworthy vehicle considered! The part they don't tend to shout about is the APR, which is often 300 per cent or more. Welcome to the world of the logbook loan.

Borrowers looking to raise funds in this way often do so because they are considered to be a poor credit risk and are unable to obtain finance from other sources. The Consultation Paper reveals that many such borrowers do not have enough savings to enable them to maintain repayments if they run into...