LAST week I raised concerns about the Moveable Transactions (Scotland) Bill and how it would enable people to virtually pawn their moveable goods worth at least £1000 to borrow money.

For those raising credit on household goods and cars, the penalty on default is the ability of a creditor to apply to the court for sheriff officers to enter your home, remove your goods and sell them at a public auction. I described this as a new form of warrant sales. I stand by that descriptor.

In response, a spokesperson for the Scottish Government said: “Consumers would benefit from these proposals because securing the debt against previously untapped moveable assets would generally result in lower interest rates than an unsecured loan. The Bill in no sense represents a return to warrant sales of property belonging to those unable to pay debts”.

I want to challenge the assertion the Bill would enable Scottish consumers to access credit at lower interest rates. All the experience from the rest of the UK proves that the opposite would happen.

In the rest of the UK “bills of sale” are a way for people to use their goods as security for loans while retaining possession of those goods. This is what the Moveable Transactions (Scotland) Bill does by enabling you to register a “statutory pledge” over moveable goods.

Bills of sale have never existed in Scotland, but they will do if the Bill is passed by the Scottish Parliament. Bills of sale are mostly used for “logbook loans” – loans against cars. These are a form of high-cost credit often used by predatory lenders for borrowers who have difficulty accessing affordable credit.

If you type logbook loans into an internet search and allow your location to be included a large number of creditors will pop up offering you an instant online logbook loan even although these don’t exist yet in Scotland.

Some give an example of borrowing £1000 over three years with an annual percentage rate (APR) of 204.2%. That’s almost £100 per month with a total repayment of £3660. Other companies offer APRs of 230%.

These products aren’t lower interest rate loans, so what benefit is there in facilitating logbook loans for Scottish consumers? Moreover, given the cost of living emergency we’re experiencing isn’t this Bill going to make life much worse for those at the sharp end financially?

If you wanted to help those in financial difficulty access affordable credit you could work with our local credit unions or introduce new government schemes to help those struggling with household bills.

Logbook loans peaked in England in 2014, with 52,000 taken out and 37,000 in 2016. In 2016, an English Law Commission report recommended that bills of sales should be repealed and replaced with modern legislation that imposed fewer burdens on lenders and provided more protection for consumers.

The Commission said, “Bills of sale are fraught with problems, both legally and practically”. This included allowing goods to be repossessed on a single default, with little protection for borrowers. That is precisely what our Scottish Bill would do. The UK Government agreed to introduce law reform in 2017 but ditched its pledge in May 2018.

Further evidence of the dangers of logbook loans comes from Citizens Advice (CA) and the Financial Ombudsman Service.

CA gives an example of a working mum who was unable to work for six months after a car accident, she took out a series of payday loans and then went to a logbook lender for a larger amount.

She borrowed £3000, repaying £65 a month – but later found out only £20 of the payment was actually going to pay off the debt.

Another case example includes a man made redundant. He decided to go self-employed and started a valeting business. He borrowed £800 only to find he faced a £5000 repayment bill. When the business didn’t make the money he expected, and he struggled to keep up the £150 a month repayments, the firm took away the valet van but said he still had debts of £7800.

That’s another problem with logbook loans you can’t end the agreement by handing back the goods – as you can for other forms of consumer credit like hire purchase.

Significantly, the Scottish Bill only provides debtor protections for individuals. Sections 48 and 64 of the Bill excludes “sole traders” in relation to goods they use “wholly or mainly for the purposes of the individual’s business”.

This would include many taxi drivers and Deliveroo riders working in the gig economy. If such persons borrowed on their vehicles there wouldn’t even be a new form of warrant sale under the Bill – their vehicles could simply be repossessed without a court order.