Not upheld: undisclosed commission and unfair relationship under Section 140 Consumer Credit Act 1974 complaint against Secure Trust Bank Public Limited Company (trading as Moneyway)

Decision detail

Summary

Ms L complained that Moneyway failed to act fairly by not disclosing a £751.46 commission paid to the credit broker who introduced her hire purchase agreement for a used car purchased in May 2016. Ms L argued the undisclosed commission created an unfair lending relationship under Section 140 of the Consumer Credit Act 1974. The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench and found that although the commission was not disclosed, it was unlikely a court would find the relationship unfair because the commission did not involve a discretionary arrangement, represented less than 10% of the loan amount, and no commercial tie existed between the broker and lender. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the Supreme Court's three-part test from Hopcraft, Johnson & Wrench to determine whether undisclosed commission could render a lending relationship unfair. The ombudsman found that: (1) the commission did not involve a discretionary commission arrangement, so the broker had no discretion over the interest rate; (2) the £751.46 commission was not high relative to the £7,536.50 borrowed (less than 10%) or the total cost of credit (around 15%), and would unlikely have been a major consideration had it been disclosed; and (3) no commercial tie existed between the broker and Moneyway, as evidenced by review of multiple broker agreements showing no contractual ties, which is consistent with Moneyway's market position serving customers with limited credit options.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website