Not upheld: undisclosed commission and unfair relationship under Section 140 Consumer Credit Act 1974 complaint against Advantage Finance Limited

Decision detail

Summary

Mr M complained that Advantage Finance failed to act fairly by not disclosing a £250 commission paid to the credit broker that introduced him, arguing this created an unfair lending relationship. In February 2020, Mr M entered into a hire-purchase agreement for £8,700 with total charges of £8,573 over 60 months. The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench and found that the fixed commission (not discretionary), its small size (less than 3% of borrowed amount), and absence of any commercial tie between broker and lender meant the relationship was unlikely to be unfair under Section 140 of the Consumer Credit Act 1974. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench, which established that an unfair relationship under Section 140 CCA could arise where a discretionary commission arrangement existed, the commission was high relative to the credit cost, or a commercial tie existed. The ombudsman found none of these factors applied: the commission was fixed (not discretionary), the £250 payment represented less than 3% of the borrowed amount and total credit cost (not high), and no commercial tie existed between the broker and lender. The ombudsman concluded that even if disclosed, the commission would unlikely have been a major consideration for Mr M given its proportionate size and the absence of a direct link between commission and interest rate.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website