So-called “logbook loans” which allow consumers to borrow money against the value of their car could be banned under new government proposals.

The loans, which allow the lender to repossess a borrower’s vehicle if they default on payments, have been branded “archaic” by the department for business innovation and skills (BIS) who is calling for them to be outlawed.

The loans are often aimed at those with poor credit ratings who typically struggle to qualify for mainstream credit and often attract relatively high APRs. Over the past four years, the Office of Fair Trading has received more than 1,000 complaints regarding this type of borrowing.

Under the loan agreements, lenders can often repossess and sell a debtor’s vehicle without a court order and, where the amount raised from the sale is not sufficient to cover the outstanding debt, lenders can also chase borrowers to make up the shortfall.

“They were developed in the days of Charles Dickens and don’t meet 21st century consumer standards,” said consumer minister Kevin Brennan.

David Harker, chief executive of Citizens Advice said it was high time they were banned.

“There is no consumer protection and people can end up in serious debt and risk losing their car and even their home when they borrow money this way.

“CAB advisers have seen cases where borrowers have been subject to unfair or misleading sales practices.

“Bureaux have seen cases where lenders pursue shortfalls after sale aggressively, including putting people’s homes at risk through the use of charging orders – a second chance at securing a previously secured debt,” he explained.

Nearly 40,000 such loans were made in the year to March 2009 for sums amounting to £30m.