Not upheld: irresponsible lending and undisclosed commission in motor finance complaint against Advantage Finance Limited

Decision detail

Summary

Mr A complained that Advantage Finance unfairly entered into a hire-purchase agreement for a £10,289 car in March 2018 with unaffordable monthly payments of £345.46, and that the firm failed to disclose a £725 commission paid to the credit broker. The ombudsman found that although Advantage Finance did not provide evidence of its affordability checks, Mr A's financial information suggested he could afford the payments. Regarding the undisclosed commission, the ombudsman applied the Supreme Court's Hopcraft test and found the fixed £725 commission (7% of amount borrowed) was unlikely to be considered high, involved no discretionary arrangement allowing the broker to set interest rates, and no commercial tie existed between the broker and lender. Therefore, the complaint was not upheld.

The Ombudsman's reasoning

Although Advantage Finance failed to provide evidence of proportionate affordability checks, the ombudsman concluded that proportionate checks would not have prevented the lending because Mr A's disclosed financial information suggested he could afford the monthly payments. Regarding the undisclosed commission, the ombudsman applied the Supreme Court's Hopcraft test and found that the £725 fixed commission (representing approximately 7% of the amount borrowed and 11% of the total cost of credit) was unlikely to be considered high, did not involve a discretionary commission arrangement, and no commercial tie existed between the broker and lender. Therefore, the undisclosed commission was unlikely to render the relationship unfair under section 140A CCA.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website