Lots of good thoughts and comments already. I have a question though- what does he do if you don't give him contact/something to pull against and just give him all the rein he wants and keep it slack? After all, his neck is only so long... Does he just run off willy-nilly? Or just he then just carry his head low (peanut rolling) but stay responsive? Or does he react differently all together?
Many horses can learn to move both on the bit and on a loose rein. I am not saying those horses go on to be champion competitors in any field, but it is certainly not beyond a horse to be able to work both on a loose rein and on contact, even during the same ride, as requested by the rider at a pleasure-horse level. What is this guy used to, and what would you like him to do?