Bills of Sale
A credit agreement can be secured on goods (usually a car) by a bill of sale.The goods are used as security for a loan. Sometimes when a car is used for security it is known as a logbook loan. The lender will own the goods until the loan has been cleared and if payments are not kept up to date, the lender can take and sell your goods, without going to court. You cannot sell the goods either because you do not own them until the debt has been paid off.
Before taking a Bill of Sale
Key facts about the agreement should be provided to you. The lender should also provide you with a Customer Information Sheet. This is a description of what a bill of sale is, how you can expect the lender to behave and your responsibilities. You should be given both the bill of sale document and the credit agreement at the same time when you take out an agreement.
Code of practice
Most lenders who offer bill of sale agreements are members of the Consumer Credit Trade Association (CCTA). The CCTA has a code of practice on its website covering bills of sale and the rules on how you should be treated by a member.
The following are key points of the code:
- If you are in arrears you may be able to hand over the car in full settlement of the debt. If so, you will not have to pay any more money, even if the value of the car does not cover the amount you owe. [4.8.11]
- The lender must register the bill of sale with a reputable vehicle registration organisation within 24 hours of making the agreement, so that anyone who might buy the car can check whether it has a bill of sale registered against it. [3.14]
- Before you sign the agreement, the lender must tell you about any charges that they will add if you miss payments. These charges must only be enough to cover the lender's costs. [4.8.4]
- If you get into difficulty paying the loan, the lender must look at options with you to see how you can repay the debt. The lender should only repossess the car if they cannot agree a repayment arrangement with you to clear the arrears. [4.8.6]
- Lenders should not take your car away unless you owe an amount equal to at least the last two monthly payments. If you are paying weekly, they should not take your car away unless you owe an amount equal to the last four weekly payments. [4.8.7]
- If a money adviser is helping you, the lender should hold action on your account for at least 30 days while you come to a payment arrangement. [4.7.5]
- If they take your car away, the lender should not try to sell it for 14 days. This is to give you time to make an offer to try to keep the car. [4.8.8]
- Lenders should try to sell your car for the highest possible market price. [4.8.8]
- The lender can ask the court to secure any debt left after the car has been sold to your home through a ‘charging order’. If the lender gets a charging order, they will not use it later to try to force a sale of your home to recover the money you owe them. [4.8.10]
- Balloon payments should only be offered to business customers who can show they will have funds to make the final repayment. [4.2.2]
A balloon payment is a much larger, final payment to clear loan. This type of payment should only be an option if the loan is mainly or entirely for business purposes. A balloon payment agreement should not last longer than 12 months and the lender should check how you are going to afford the balloon payment.
If the lender has ended the agreement, they can take your car without going to court. They can take your car from the roadside and in some circumstances from a locked garage by breaking in (you should check your agreement).
If you do not return the car to the lender at the lenders request, they can apply to court for a ‘return of goods’ order. If the order is ignored, bailiffs may be instructed.
Ending the agreement yourself
You may be able to end the agreement yourself once a default notice has been issued. If you are currently up to date with the agreement and the lender is a member of the CCTA, you may be able to hand the goods back without owing anything further, providing the goods are in a reasonable condition.
Before your lender can terminate the agreement and remove your goods or car, they must send you an arrears notice and a default notice under the Consumer Credit Act 1974. The default notice allows for any missed payments to be made within 14 days.
CCTA members must try to agree a realistic repayment agreement with you and the missed payments must be equal to the last two monthly payments (or the last four weekly payments if you pay weekly).
Repayment of the arrears
Work out a budget to show what you can afford. Section 4.7.3 of the CCTA code states that members should be sympathetic and positive when dealing with people in financial difficulties. You may be able to get the account suspended for 30 days if you can show you are being helped by a debt specialist or advice agency. Look at the terms and conditions in your agreement to see what extra charges the lender can ask you to pay.
These may be challenged if you feel they are too high, or if they are different to what you were told about when you took out the agreement.
Preventing recovery of the car
If the lender will not agree a repayment arrangement you may want to check to see if the bill of sale is in the required form. If not, the lender has no legal right to take the car. Check the following;
The ‘consideration’ is the total amount of money, also known as the ‘amount of credit’. Some lenders use the ‘amount of credit’ figure from the agreement. You should check that this figure is just the money loaned. If the figure is different, because it includes extra things like interest, it will mean the bill of sale is incorrect.
Schedule of items
This should set out the goods that the bill of sale is secured against. It will usually include the details of your car, such as the registration number. You should check the details are correct
Restatement of consideration
This must be the same figure as the amount of money the lender loaned you, the ‘amount of credit’. The figure should be the same as the one stated in the ‘Consideration’.
Statement of interest
The statement of interest needs to be set out as a simple percentage rate. This is not the same as the ‘APR’ or Annual Percentage Rate.
The bill of sale must set out an accurate statement of the instalments scheduled under the agreement.
Witness to the bill of sale
An agent or employee of the company must witness the bill of sale.
Check the registration
The lender must register their bill of sale in the High Court within seven days of the agreement being made for it to be valid. If the loan term is longer than five years, the bill of sale must be re-registered every five years to remain valid.
If you think that the bill of sale is incorrect you should challenge the bill of sale with the lender by letter. Explain why you think that the bill of sale is not effective. Request that the lender confirms in writing that they understand that the bill of sale does not secure the goods and that they that they will not attempt to take your goods.You may want to seek assistance from a specialist in these circumstances.
If you feel your lender has been unreasonable and not treating you fairly, you may wish to complain. Complain in writing to the lender first and if the lender does not deal with the complaint to your satisfaction, after eight weeks you can complain to the Financial Ombudsman Service (FOS). Even if the lender is not a member of CCTA, you can use the CCTA's code of practice to identify the lender’s poor behaviour because the code is industry best practice.