Not upheld: undisclosed commission in motor finance / unfair relationship under Section 140 Consumer Credit Act 1974 complaint against Advantage Finance Limited

Decision detail

Summary

Miss H complained that Advantage Finance failed to act fairly by not disclosing a £500 commission paid to the credit broker that introduced her, which she argued created an unfair lending relationship under Section 140 of the Consumer Credit Act 1974. In April 2017, Miss H entered into a 54-month hire purchase agreement for £7,834.00 with total charges of £7,903.26. The ombudsman applied the Supreme Court's framework from Hopcraft, Johnson & Wrench and found that while the commission may not have been disclosed, it was unlikely a court would find the relationship unfair because the commission was fixed (not discretionary), represented less than 6.5% of the amount borrowed and credit cost (not high), and no commercial tie existed between the lender and broker. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the Supreme Court's framework from Hopcraft, Johnson & Wrench, which identified three circumstances where undisclosed commission could render a lending relationship unfair: discretionary commission arrangements, high commission relative to borrowing, and commercial ties. The ombudsman found none of these circumstances applied. The £500 fixed commission did not involve discretion over interest rates, represented less than 6.5% of the amount borrowed and credit cost (not high), and no commercial tie existed between the broker and lender. Therefore, even if undisclosed, the commission was unlikely to be found unfair by a court.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website