The Law Commission has published its final report on the Goods Mortgages Bill. This marks the end of a project that started in 2014, aimed at addressing the problems the outdated Bills of Sale Acts cause for borrowers, purchasers and lenders engaging in logbook loans. The particular problems the new Bill seeks to address are:
- the current ability of lenders to seize assets without a court order, even if almost all the loan has been repaid – there will be protections which set grounds and procedures for being able to take possession;
- the fact that private purchasers do not acquire ownership if they buy a vehicle subject to a logbook loan – these purchasers will not be bound by someone else’s goods mortgage provided they act in good faith with no actual notice of the mortgage. There will also be a duty on borrowers to disclose the existence of a goods mortgage; and
- the current requirement on lenders to undertake a costly registration regime, and complex documentation requirements with severe consequences in terms of ability to claim repayment for lenders who do not comply. The Bill will propose a new simple electronic register, and simplified documentation with warnings in prescribed formats. There will be no need to replicate the wording from the credit agreement that the mortgage will in practice sit alongside.
The Law Commission’s final proposals for what it has decided to call “goods mortgages” apply to “individuals” (that is, consumers, sole traders or partners in unincorporated partnerships) where they grant a “charge” over “qualifying goods” (defined as things one can touch and move – so the regime will not apply to land or intangible property, and also excludes ships and aircraft). The law will apply to secure the performance of a “qualifying obligation” – so the regime can apply more widely than merely to secure loans, but certain obligations are excluded, such as an obligation to perform services, a guarantee (unless the guarantor is a HNW individual), and running-account credit (unless the borrower is a HNW individual or a business borrowing more than a certain amount – likely to be £25,000).
The Bill will contain opt-in provisions to allow borrowers who have repaid at least one third of a loan to require lenders to obtain a court order for possession, and also introduces the possibility for borrowers to have a new statutory right of voluntary termination.
The next step is for the Government to introduce the Bill through the Law Commission’s special procedure.