Financial Conduct Authority to crack down on ‘logbook lenders’

 

The Financial Conduct Authority (‘FCA’) has called for ‘logbook lenders’ to ‘dramatically raise their standards’ if they want to continue trading. Logbook lenders supply loans that are secured against a borrower’s vehicle.

Stemming from research conducted between November and December 2013, the FCA has found evidence of ‘poor firm behaviour, including little or no affordability checks’, with some applicants even being encouraged to manipulate details of their income on application forms. The FCA also came across evidence indicating that consumers were being pressurised and put on the spot to take out a loan without being informed about the existence of the statutory cooling off period. In other cases, borrowers had not been made aware of the total costs involved and that missed repayments could lead to their vehicles eventually being repossessed.

 

The FCA also found that many consumers had little knowledge of the concept of a logbook loan and what it meant in terms of, for example, the ownership status of their vehicle. Being desperate for the loan, many consumers also failed to shop around and were found to focus more on weekly payment amounts than the total sum of what they had agreed to repay.

 

According to the FCA, logbook loans range in size from approximately £500 to £50,000 and are often used by vulnerable consumers in difficult circumstances who have exhausted other means of potential credit. The loans usually last for about six to 18 months, with a typical APR of 400% or higher.

 

Christopher Woolard, director of policy, risk and research at the FCA said, ‘People who use logbook loans are often in difficult circumstances with few other borrowing options. The last thing that should be happening is for them to be squeezed yet more or even threatened, but that is what our research has found’. Woolard continued, ‘Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action’.

 

Responding to the FCA’s statement and accompanying report, shadow minister for Competition and Consumer Affairs, Stella Creasy, said, ‘Time and again this government has been too slow in recognising and reacting to dangerous practices in the consumer credit market…This research makes a damning case to show that there’s more than one toxic type of company out there causing serious damage to the finances of families’.

The FCA took control of consumer credit matters from the Office of Fair Trading on 1 April 2014 and this week’s statement on logbook lenders forms part of a swathe of new rules and standards for the consumer credit industry to adhere to and signifies a new, firmer approach to regulating the sector.