Not upheld: unfair credit relationship under Section 140A of Consumer Credit Act 1974; connected lender liability under Section 75 of Consumer Credit Act 1974 complaint against Mitsubishi HC Capital UK Plc trading as Hitachi Capital

Decision detail

Summary

Mr W purchased Fractional Club timeshare membership in November 2012 for £6,998 (plus £32,409 in consolidated financing) and subsequently complained that the lender acted unfairly by rejecting his Section 75 claims for misrepresentation and breach of contract, and by being party to an unfair credit relationship under Section 140A. The main allegations were that the timeshare was misrepresented regarding its guaranteed end date and exclusivity, that it was marketed as an investment in breach of Regulation 14(3) of the Timeshare Regulations, that Mr W was pressured into the purchase, and that undisclosed commission arrangements rendered the credit relationship unfair. The ombudsman found no actionable misrepresentation, no material breach of contract, and that even if the supplier had breached Regulation 14(3) by marketing as an investment, this was not material to Mr W's decision as he was motivated by holiday usage (evidenced by his 16% increase in points and three subsequent purchases) rather than investment returns. The commission of 10% was not disproportionately high, and Mr W had sufficient information about the cost of credit. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman found no actionable misrepresentation by the supplier regarding the guaranteed end date, exclusivity, or being the only way to exit existing membership. Regarding Section 75 breach of contract claims, the allegedly unfair contract terms were more relevant to Section 140A analysis. On the central Section 140A unfair credit relationship claim, the ombudsman considered: (1) the supplier's sales and marketing practices, finding insufficient evidence of material pressure; (2) the provision of information, finding no material impact on Mr W's decision; (3) the possible breach of Regulation 14(3) regarding marketing as investment, but concluding that even if such a breach occurred, it was not material to Mr W's purchasing decision as he was motivated by holiday usage rather than investment returns, evidenced by his pattern of subsequent purchases and his statement; (4) commission arrangements, finding the 10% commission was not disproportionately high compared to the Supreme Court's guidance in Hopcraft, Johnson and Wrench (which involved 55% commission), and that Mr W had sufficient information about the cost of credit to make an informed decision. The ombudsman applied the principle from case law that regulatory breaches do not automatically create unfairness under Section 140A and must be considered in the round with their actual impact on the consumer.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website