Second-hand car buyers left with debts of former owners
Unwitting second-hand car buyers are being chased for hundreds of pounds in debts owed on loans taken out by previous owners. Drivers raising finance with so-called logbook loans secured on their vehicles are selling on their cars before settling their accounts.
As a nervous first-time car buyer, 24-year-old Louise Stent was careful to pay for her second-hand Peugeot 206 through a garage before handing over the cash she had saved up.
"I was very cautious about where I bought it from. I wanted to get a car that would last me a long time," she told 5 live Investigates.
"It was the first car that I'd bought on my own so it was quite a new adventure for me."
But about a year later Louise received a letter from the company Logbook Loans, to say she was not the legal owner of the vehicle and she was told she would have to pay £600 to keep it.
"First of all I cried, then I was in shock. I felt physically sick and I couldn't believe that a car that I'd just spent loads of time saving up for was basically not mine any more."
A previous owner of the car had taken out a loan secured on the vehicle, but had sold it on before settling all of his debts.
Logbook loans are secured under a Victorian law called the Bill of Sales Act and offer much less protection to consumers than other forms of credit.
Under the act, a borrower taking out a logbook loan formally hands ownership of the vehicle over to the lender.
Not only does that mean that the borrower has no legal right to sell-on the vehicle, but any innocent third party buying it also has no rights of ownership.
After getting her solicitor involved, Louise negotiated to keep her car by paying Logbook Loans a one-off payment of £200.
"I said I wasn't agreeing to the fact that I owed that money, but I was willing to give them the money just to release my car because they had hold over my car," she says.
"I had sleepless nights worrying whether I'm going to wake up to actually find my car outside or not."
Logbook Loans told 5 live Investigates that they have many cases where they have not seized vehicles from new owners, despite having the right to repossess them.
After being contacted by the BBC, Logbook Loans said that, as a goodwill gesture, they will be refunding Louise the £200 she had previously paid them.
But after her legal fees, Louise is still hundreds of pounds out of pocket.
Call for ban
Andy Foster, the Operations Director for the Trading Standards Institute says loans secured on bills of sale should be outlawed.
"We think they are absolutely archaic in terms of the language they use and in terms of the protection they provide consumers, it's virtually zero.
"It's about protection for the lender, not the consumer, and that's why we call for them to be banned."
It is estimated that around 40,000 bills of sale were registered in 2008-09 in England and Wales and experts warn these loans could become more popular as credit remains squeezed by mainstream lenders.
The consumer charity, National Debtline, says it has seen an increase in complaints about logbook loans of 15-20% each year since 2007.
The previous Labour government consulted on whether to ban the practice but the Coalition government has decided not to legislate.
They say that a new industry code of practice will offer more protection to consumers.
But Joanna Elson, the Chief Executive of National Debtline, doesn't believe this goes far enough.
"We do believe that the government ought to insist that really we start again with this kind of instrument and move it something closer to the kind of consumer protection we would see with other loans."
The industry's trade body, the Consumer Credit Trade Association, says it believes the innovation and flexibility of consumer finance products is good for consumers.
It says its complaints and arbitration service has had no reported cases involving logbook loan companies.
Louise Stent, though, says the whole experience has put her off ever buying a second-hand car again.
"I'm very angry because I don't think what I went through, I should have gone through," she says.
"It was through no fault of my own, it was not my debt to have to deal with and the person that got the debt in the first place doesn't have to pay it because I've done it."