Logbook loan firms are the latest credit companies to come under the scrutiny of the City Watchdog. The Financial Conduct Authority's investigation has thrown up examples of lenders not making adequate affordability checks and encouraging applicants to lie on loan forms.
Logbook loans are secured on the borrower's vehicle. They're expensive – with APRs of 400 per cent or more – and most borrowers are unaware of the risk of losing the motor. That's because logbook loans use a "bill of sale" which leaves the loan company as the legal owner of the car. The net result is that they can snatch the car if borrowers miss a repayment.
Christopher Woolard, director of policy, risk and research at the FCA, said: "People who use logbook loans are often in difficult circumstances. The last thing that should be happening is for them to be squeezed yet more or even threatened."
Logbook lenders must apply for authorisation before 1 April 2015. Rogue firms will be denied a trading licence, the watchdog warned.