Government response on bills of sale consultation
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Issued on 28
January 2011 - BIS
The Government announced
today that the ‘Bills of Sale’ money lending industry will be working
under a new Code of Practice from 1 February 2011. Lenders will also
provide customers with a plain English information sheet explaining how
bills of sale work, and what the customer can expect from the lender.
A bill of sale is used to
secure a loan on a consumer’s personal property, typically a car.
Concerns were raised that this form of loan could lead to consumer
harm. As a result, the Government consulted on whether any action was
Consumer Minister, Edward
“It’s important that we
clarify what’s involved in a bill of sale loan. There have been
concerns in the past about how difficult they are to understand, so
this Code of Practice and the plain English information sheet should
provide more transparency on what a loan entails for both the lender
and the consumer. I welcome the fact that the majority of the industry
has already signed up to abide by this code.”
The Government felt that any
ban could restrict consumer access to credit, reduce choice and push up
prices. This could also potentially force some consumers into the hands
of illegal lenders. It was also felt that it would be disproportionate
to ban an industry because of a few rogue lenders.
Added consumer protections
from the new Consumer Credit Act will come into force on 1 February
2011, and the OFT will monitor the industry under the Irresponsible
Lending Guidance, which will have a positive impact on consumer rights
for bills of sale loans.
1. In summary, the Code of Practice says:
- borrowers who are in arrears will be able to hand over the
car in full settlement of their debt and will not be liable for any
shortfall between the outstanding debt and the value of the vehicle;
- the option of making balloon payments* will only be
available to business customers who can provide evidence that they will
have funds to make the final repayment;
- the bill of sale must be registered with an asset finance
register so that the public can check whether a vehicle has a bill of
sale registered against it;
- charges to be imposed on borrowers in arrears must be
disclosed at the pre-contractual stage and must only cover the lender’s
- if a borrower gets into difficulty, lenders must consider
proposals for alternative payment arrangements and will repossess the
car only if attempts to arrange alternative payment arrangements fail;
- lenders will take all reasonable steps to ensure that
repossessed cars are sold for the highest obtainable market price.
*Balloon payments are small initial repayments covering only
the interest, with the capital to be repaid in a single final payment.
2. New regulations implementing the Consumer Credit Directive
will apply to a loan taken out under a bill of sale. They will give
consumers new rights and impose new requirements on lenders:
- Lenders will have to make a reasonable assessment of
whether a borrower can afford to meet repayments in a sustainable
- Lenders will have to explain the key features of the credit
agreement to enable the borrower to make an informed choice.
- Prospective borrowers will be given an information sheet
setting out all the relevant information about the credit agreement.
The information sheet will be in a standard format for all lenders so
borrowers can easily compare the costs of different loans. (The
proposed new information sheet for bills of sale will complement this
by setting out the key features of a bill of sale.)
- Consumers will have an absolute right to withdraw from a
credit agreement within 14 days, paying back only the money lent and
any interest accrued over that time.
3. The OFT recently introduced Irresponsible Lending Guidance.
It will give all consumers, including bills of sale customers, added
protections by making it clearer what business practices could be
considered irresponsible in a credit agreement. The OFT can impose a
range of penalties (including removing the lender’s credit licence) for
those not complying with the law or the guidance or otherwise engaging
in unfair or improper business practices. You can find out more at www.oft.gov.uk
4. The full consultation response can be found on the
Department for Business, Innovation and Skills website: www.bis.gov.uk
About the Author
© Crown Copyright. Material taken from the BIS Department for Business, Innovation and Skills. Reproduced under the terms and conditions of the Click-Use Licence.
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Article Published/Sorted/Amended on Scopulus 2011-01-28 12:14:33 in Business Articles