Not upheld: undisclosed commission in motor finance and unfair application of charges complaint against Advantage Finance Limited

Decision detail

Summary

Mr S complained that Advantage Finance Limited failed to disclose a £500 commission payment to the broker who introduced his business and that this resulted in unfair lending terms. He also complained about fees and charges applied when his direct debit failed on multiple occasions between 2016 and 2020. The ombudsman found that while the commission may not have been explicitly disclosed, it was a fixed amount representing less than 5.6% of the amount borrowed with no discretionary element or commercial tie, and therefore would not have materially impacted Mr S's decision to enter into the agreement. The charges were clearly disclosed in the hire purchase agreement and applied in accordance with its terms and industry norms. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench, which established that a lending relationship could be unfair where there was a discretionary commission arrangement, high commission relative to the cost of credit, or a commercial tie. In Mr S's case, the £500 commission was fixed (not discretionary), represented only 5.6% of the amount borrowed and 5.99% of the total cost of credit (not high), and there was no evidence of a commercial tie between Advantage and the broker. The ombudsman concluded that even if the commission had not been disclosed, a court would likely not find the relationship unfair because the commission would not have been a major consideration for Mr S, particularly given his admission that he could not easily obtain credit elsewhere and he knew the cost of the agreement. Regarding charges, the ombudsman found they were clearly disclosed in the agreement, applied in accordance with its terms following failed direct debits, and were in line with industry norms.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website