Logbook Loans

Robert Jenrick Excerpts

Tuesday 12th June 2018 Westminster Hall

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

I am grateful to the hon. Member for Makerfield (Yvonne Fovargue) for raising this issue and for the leadership she has shown on it. She has been following it for some time. The constituents and cases that she has raised are very serious. I am grateful for her involvement in the matter.

Like the hon. Lady, we believe that consumer credit plays an important role in society. It helps individuals spread income and costs over time and cope with unexpected financial shocks. However, it is vital that consumers are treated fairly and that we ensure that their interests are protected, particularly in the case of high-cost products, of which logbook loans are an important example. The hon. Lady set out a number of instances where the costs incurred in some logbook loans are egregious. One would have to question whether individuals should take out such loans.

It is worth pointing out that the number of logbook loans has fallen substantially in recent years. They now make up a very small percentage of the wider high-cost credit market. The total value of outstanding logbook loan debt was less than £100 million in 2016, compared with £2.7 billion of debt from payday loans, doorstep lending, and rent-to-own.

[Yvonne Fovargue]

Does the Minister agree with me and Citizens Advice, who fear that the message being sent by not putting the Bill forward will increase and mainstream logbook lending?

[Robert Jenrick]

I hope I can give some explanation over the course of my remarks as to why we have chosen not to proceed with the Bill at the moment. My opening remarks that the market has shrunk considerably is not to diminish the concerns that the hon. Lady has raised about some of those logbook loans. It is important context to the debate, though, that the market appears to be shrinking, at least for the moment.

The number of bills of sale registered at the High Court has fallen from 52,000 in 2014 to around 35,000 in 2016. That compares with 760,000 people taking out a total of 3.6 million payday loans in 2015 alone. Logbook loans remain an important, if small, part of the loan market and are worthy of attention.

In September 2014, the Government asked the Law Commission to examine the Bills of Sale Acts—the legislation that underpins logbook loans. As the hon. Lady set out, those Acts hark back to a long-distant era. There were concerns over stories of consumer exploitation and high levels of interest, and she has given further examples. Those stories include vehicles being seized too readily on default and unwitting third parties buying a vehicle subject to a logbook loan. All of those things are cause for concern. The Law Commission concluded that the Bills of Sale Acts were out of date and recommended that they should be replaced with a new Goods Mortgages Bill. The Government were sympathetic and agreed that the Law Commission should prepare a draft Bill, which it did, consulting on the draft clauses in the summer of 2017.

Separately, in September 2017, the Government, again showing our good faith and desire to progress the matter, consulted on the aims of the Bill and published the consultation response in May 2018. Although the consultation responses undoubtedly showed a degree of concern about the logbook loan market and broad support for the proposed approach set out in the draft Bill, many stakeholders raised significant concerns, which I will discuss in a moment. Overall, there was less agreement on the detail of the draft Bill than we would normally expect following the Law Commission process, and less than we would wish to see before being ready to proceed with it.

Let me set out a few of the concerns from different stakeholders. Consultees suggested that the draft Bill did not do enough to provide clarity for courts, and expressed concern about its requirement for consumers to opt in to the court process, rather than its being the default. Some consultees also said there needed to be more clarity about the circumstances in which a lender could repossess a secured good without requiring a court order—an important issue, to which the hon. Lady alluded. Other consultees highlighted the risk of borrowers exploiting the protections in the draft Bill for fraudulent purposes.

In addition, a number of consultees argued that the draft Bill could encourage lending to vulnerable consumers by making it easier for consumers to grant security over their goods. Access to credit is obviously an important issue to Members on both sides of the House. The Government are determined to ensure that any legislative changes lead to better outcomes for consumers and do not have unintended consequences.

Having given careful thought to the concerns raised in the consultation, we decided that it was not the right moment to take forward the Bill as currently constituted, and that we wanted to give the matter further consideration. In the light of that decision, the Financial Conduct Authority has decided to look more closely at the logbook loan market, and we welcome that. The FCA will use its supervisory and policy tools to assess whether further action is required, including new rules that are necessary to protect consumers.

The hon. Lady has already set out examples of some of the actions that the FCA could choose to consider, at its discretion. The Government believe that at the moment that is a more proportionate approach, given the declining numbers in the logbook loan market and the concerns that were raised in the consultation about the Bill as currently drafted.

[Yvonne Fovargue]

Could the Minister explicitly say what powers the FCA has to protect innocent consumers who buy cars in good faith, who cannot check anywhere whether they are subject to a logbook loan, and yet who can still have them repossessed?

[Robert Jenrick]

That is one of the matters to which the FCA will need to give careful consideration. We hope that it will take that forward. It is also considering, as the hon. Lady suggested, a number of measures with respect to the high-cost credit market. It published an update on 31 May announcing a package of initial measures to tackle problems in the high-cost credit market, including a proposal to cap the cost of rent- to-own.

Those measures show the seriousness with which the FCA is taking the wider issue, and I hope that it will give this issue the consideration that it deserves. The hon. Lady has raised one of a range of issues to which the FCA will need to give careful thought. This is an example of the FCA using the powers that it has been given by the Government to protect consumers. We will continue to work closely with the FCA as it undertakes its review of, more generally, the high-cost credit market and, in particular, the logbook loan market. We will consider whether the Government should take any further action in the light of its findings. This is not the end of the story. We want to give the matter a great deal more thought.

Alongside that, the Government are taking further action to protect borrowers. We are supporting families to build their financial literacy through the Money Advice Service, and £27 million is provided every year through MAS to co-ordinate financial education in schools and to improve the public’s financial capability. A further £49 million was spent in the previous financial year on providing more than 440,000 free-to-client debt advice sessions across the country. We want to continue to look for measures to protect the public and to improve financial literacy and awareness.

I know that the hon. Lady is disappointed by the Government’s decision at this stage. I reassure her that the decision was not taken due to pressures on parliamentary time, although that is always a consideration when introducing legislation. The Government’s primary objective is to ensure that, if we legislate, we do so correctly, and bring in interventions that will protect consumers without unintended consequences. That is why we decided, following the consultation, that the Bill was not yet in the right place.

Question put and agreed to.