I was surprised to find out today that Welcome Finance, have recently had a victory against another creditor in the name of Log Book Loans. It is highly unusual for creditors to be pursuing each other and as a result this judgment makes very interesting reading. Especially as both creditors are infamously known by our Consumer department.
Apparently the situation arose due to a practice by some consumers purchasing vehicles from Welcome Finance under Hire Purchase Agreements and then subsequently seeking a further loan secured on the vehicle with Log Book Loans. Before Welcome had been able to register the vehicles on the HPI register, Log Book loans had lent money to consumers and secured their loan onto the vehicle through a Bill of Sale. Basically the vehicle then supposedly became the property of Log Book Loans.
When the car owner has fallen into arrears, Log Book Loans have then seized the vehicle, without the need to obtain a court order and sold it to cover their debt with them. This practice has therefore left Welcome Finance with no route to recover the money they were owed by the consumer under the Hire Purchase Agreement.
A claim was brought in the Wandsworth County Court as Welcome Finance were hoping to recover the money they were entitled to under their Hire Purchase Agreements. Welcome Finance claimed that Log Book Loans should not have the same protection as an unwitting private individual who buys a vehicle in good faith assuming the person who is selling it is entitled, as the owner, to do so.
Initially Log Book Loans succeeding in convincing the court they were in fact a private purchaser and as a result the lender couldn’t claim back the money (see the Hire Purchase Act 1964). However on appeal, Welcome Finance have turned this around and succeeded in arguing that Log Book Loans are not private purchasers but either a trader or finance purchaser and as result were obliged to provide the proceeds of sale to Welcome Finance. It is expected that Log Book Loans will appeal the decision given the effect it is likely to have on them financially.
So what does this mean if you are a consumer who has found themselves with both a Hire Purchase Agreement and a Bill of Sale secured on their vehicle? The answer is that you are likely to have to repay any shortfalls under the Hire Purchase Agreement once they have recovered the proceeds of sale from the Bill of Sale provider.
The Bill of Sale provider is still likely to seek repayment of your debt with them. Ultimately it is very unwise for any consumer to use a vehicle purchased under a Hire Purchase Agreement to secure additional funds on that vehicle.