Already in 2014 the Financial Conduct Authority, in short the FCA, conducted an investigation into the Logbook Loan niche, urged by several NGOs and the Citizens Advice, but also prompted by the public outcry of wronged and violated customers, who endured loanshark-like behaviour by logbook loan providers. After several of the horror stories were publicly discussed and featured in newspapers and on nationwide television, the FCA felt obliged to step in and impose some regulation on the consumer loan market. First, the FCA conducted a research and compiled a list of findings that were then used to compile a plan of what to do next.
Consumers were found that they have their minds only on the money, only considering how they can get their hands on a large amount of cash without any credit checks and the repayments are spread out over prolonged periods of time. Furthermore, such consumers that were interested in logbook loans, generally have bad credit ratings and/or have exhausted other avenues of receiving any money. These poor souls generally are not fully aware what they are signing on to, they have no idea how unfavourable a logbook loan is, what it entails, that it will most likely cost them their car and that there will still be payments due and that the revolving of the loan is not actually the lender helping them out, but actually totally ripping them off.
The lenders have put the highest APRs onto these loans, generally up to 400%, even more, there are tons of additional charges and fees that are not immediately apparent and not really conveyed in advance, or not made clear. It also seems that lenders do not check if the consumer will actually be able to pay them back, they only evaluate the value of the car. Some providers do perform employment checks and sometimes affordability checks, but only in walk-in places and physical branches; the online lenders are much looser. Although all of the logbook loan providers are required to abide by the Consumer Credit Trade Association’s code of practice, many do not and some do not even have a certificate issued by the FCA.
The conclusion was that the companies providing logbook loans are doing a poor job providing adequate and fully disclosing information to customers, and that they often do not check if the consumer will truly be able to repay the loan and that they are very vague when advertising. Furthermore, the lenders often do not have proper certification, nor do they abide by the CCTA code of practice. There also seems to be an impression that there are plenty of different lenders, but competition is next to non-existent and behind the scenes many providers are actually one and the same legal entity. Additional misconduct has been noted in some cases, which should be cleared out by the new reapplication for the full authorisation that was ruled mandatory since the 1st of January 2015.
Additional action will be that threshold conditions must be met, if the lenders and providers of logbook loans wish to continue doing business. The interests of consumers must be appropriately dealt with, i.e. there are conditions on suitability and on business models, furthermore, customers cannot be exploited anymore with endlessly revolving loans and similar. FCA will supervise and enforce set standards and whoever is not meeting the necessary parameters will not be allowed to continue trading.