Logbook lenders – who loan to consumers using their vehicles as security – must ‘dramatically’ raise their standards if they want to keep operating under regulation, the Financial Conduct Authority has warned.
The FCA has uncovered evidence of malpractice, with little or no affordability checks and applicants being encouraged to manipulate their income on application forms.
Customers are being pressurised into taking out logbook loans without being told of the APR, the total amount to be paid or even that the vehicle can be repossessed if they miss repayments.
According to the FCA consumers taking out logbook loans usually do so as a last resort, having exhausted all other possible avenues for credit.
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.
“Our new rules give us the power to tackle those firms found not putting customers’ interests first and remove them from the market if they don’t improve. Logbook lenders should consider this as fair notice to improve and put their customers first or we won’t hesitate to take action.”
Logbook loans range from about £500 to £50,000, with the amount borrowed averaging £1,000 depending on the vehicle’s value.
Loans usually last between six to 18 months, while a typical APR is 400% or higher. Loans can be approved from a few hours to a few days.
The FCA took responsibility for regulating logbook loans on 1 April 2014 as part of consumer credit.
Every firm currently conducting consumer credit business has to have an ‘interim permission’, but will need to become fully authorised by the FCA.
Logbook lenders will need to apply for full authorisation from 1 January 2015 and before 1 April 2015.
Any firms that can’t meet the tougher requirements will not be authorised.