Lure of the logbook loans

A new type of loan has caused a stir nationally because the money is not lent against property or a good credit rating - but against a car.

Log books loans have been criticised for charging astronomical rates and targeting vulnerable people of very slender means, then pursuing them harshly if they default.

Now a log book loan company has opened in Hollinwood. Janice Barker found out more.

Oldham Council’s Labour leader Jim McMahon has hit out after a log book loan company opened in Hollinwood, saying he fears local people may be tempted to apply for cash.

He said: “Is this a cynical attempt to target people who are struggling? In the current climate, are they targeting people who might be desperate to get money?”

Log book loans appeal to people who want cash fast or have bad credit ratings, who own their own car and want cash within 24 hours.

But interest rates can be massive.

One loan company advertised on the web (NOT the one in Hollinwood) offers an APR of 437 per cent, making a £1,500 loan cost £4,180 after 18 months. Even settling after one month costs almost £350 in interest.

Log book loans work because the the lending company keeps the V5 logbook for the vehicle, after seeing the MOT and insurance certificate.

Borrowers sign a credit agreement. A bill of sale temporarily gives the lender ownership of the vehicle until the loan is paid.

Default and the lender can take possession of the car and auction it — but you still have to pay the loan plus interest.

The bill of sale means the usual protection that the Consumer Credit Act provides — that cars cannot be seized without a court order — is removed. With an ordinary hire purchase agreement firms would need a court’s permission to seize a car.

There are several log book loan companies around the Oldham area including Loans2go, with a head office in Rochdale, and The Loans Supermarket in Ashton.

A quick internet search reveals lots of stories of people coming unstuck with a log book loan. They usually have two things in common — borrowers are desperate for cash, then a difficulty such as illness or redundancy stops a payment, so the interest spirals and the car is taken for auction.

Successful borrowers, and there are few on the net, say they use them for short term loans only, to bridge a cash flow gap, and usually repay after one month.

Manchester’s Citizen’s Advice Bureau has been dealing with several complaints about a national log book loan company, where documentation has been faulty, and agreements were unenforceable.

A Manchester firm of solicitors has also done free public work where there were unfair terms in the bill of sale.

The CAB spokesman said: “I would advise clients to take extreme care before taking on such loans.

“There have been instances where people have had keys taken off them in the street, or cars have been clamped and they have been unable to drive them.”

Dave Glymond, Principal Trading Standards Officer (Commercial Conduct) for Oldham Council said: “We have not received any complaints regarding the company based in Oldham, however we have received three complaints about companies based outside Oldham. The complaints are spread over a period of three years and involve a company in London (two complaints) and one in Newcastle.”

The new Hollinwood shop’s owner, David Leaver, said his business, Logbook Loan Shop, is a decent moneylender, and he takes a stand against unlicensed loan sharks, who threaten and intimidate people.

Mr Leaver said when he turned a derelict former pharmacy in a row of eight crumbling shops into his new business, using £30,000 of his own money without any grants, he believed he was carrying out a valuable regeneration project.

He added: “Logbook Loan Shop has opened at the bottom of Hollins Road because it is so close to the (M60) motorway. Our clients are middle income car owners who come to us from all over Greater Manchester.

“Typically they own a car worth £5,000 and would have borrowed money from a high street bank until the credit crunch. They are not generally poor people.

“Our interest rate charged on all loans is 10 per cent per month. That is simple interest not compound, ie we do not charge interest on interest. The APR calculation depends on how the borrower wants to schedule the repayments.

“Vulnerable people in deprived areas are unlikely to qualify. One of the hardest things about running this business is continually having to turn down people who come in off the street with a car that is just not worth enough. We can only take our security over cars less than eight years old with some value.

“We are licensed by the Government’s Office of Fair Trading and follow the rules of the Consumer Credit Act. They control every aspect of our behaviour from the way we advertise to the way we make our charges clear and easy to understand. Our loan agreements are open to challenge in court where borrowers can show they are “unfair”.

“We take our stand against the unlicensed money lenders who collect money by intimidation on many housing estates in Oldham.

“They are a law untothemselves and ruin many people’s lives.

“Greater Manchester Police do their best to root them out. We would like to ask what Oldham Council is doing to help free people from this menace?”

And he has written to Councillor McMahon for criticising a business he has not visited, or spoken to.

But Councillor McMahon is not convinced: “I have no interest in meeting anyone who charges very high interest rates and very blunt methods of getting the money back.”