Not upheld: undisclosed broker commission and unfair relationship under Section 140 Consumer Credit Act 1974 complaint against Moneybarn No.1 Limited

Decision detail

Summary

Mr and Mrs L complained that Moneybarn failed to act fairly by not disclosing a £500 broker commission paid when they entered into a conditional sale agreement for £9,350 to purchase a used car in February 2017. An initial affordability complaint was not pursued after an investigator found the agreement was affordable. The ombudsman applied the Supreme Court's Hopcraft test and found the complaint not upheld because the commission was fixed rather than discretionary, represented less than 5.5% of the loan amount (not high), and no commercial ties existed between the broker and Moneybarn. The ombudsman concluded that even if disclosed, the commission would unlikely have been a major consideration in Mr and Mrs L's decision to enter the agreement.

The Ombudsman's reasoning

The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench, which identifies three circumstances where non-disclosure of broker commission could render a lending relationship unfair: undisclosed discretionary commission arrangements, high commission relative to borrowing, or undisclosed commercial ties. The ombudsman found none of these applied. The £500 commission was fixed (not discretionary), represented less than 5.5% of the loan amount and less than 6% of total credit cost (not high), and no commercial ties existed between the broker and Moneybarn based on review of multiple broker agreements and the lender's public market statements. The ombudsman concluded that even if undisclosed, knowledge of the commission would unlikely have been a major consideration for Mr and Mrs L given the lack of discretionary element linking commission to interest rate.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website