Not upheld: Motor finance commission (DCA) complaint against Moneybarn No.1 Limited

Decision detail

Summary

Mr E complained that Moneybarn failed to disclose a £500 commission paid to the credit broker that introduced his business, arguing this created an unfair lending relationship under Section 140 of the Consumer Credit Act 1974. In July 2019, Mr E entered into a conditional sale agreement with Moneybarn for a used car worth £9,690, with total repayment of £19,275.89 at 36.9% APR. The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench and found that while the commission was not disclosed, it was unlikely a court would find the relationship unfair because the commission was fixed (not discretionary), represented only 5% of the amount borrowed and cost of credit, and no commercial tie existed. The complaint was not upheld.

The Ombudsman's reasoning

The ombudsman applied the Supreme Court's test from Hopcraft, Johnson & Wrench, which established that undisclosed commission could render a lending relationship unfair only in specific circumstances: where there was a discretionary commission arrangement (DCA), where the commission was high relative to the amount borrowed or cost of credit, or where a commercial tie existed. In this case, none of these factors were present. The £500 fixed commission represented only 5% of the amount borrowed and 5% of the total cost of credit, was not linked to the interest rate, and no commercial tie existed. Therefore, even though the commission was not disclosed, it was unlikely a court would find the relationship unfair.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website