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A lender had not acted fairly when it made a loan which included a sum for payment protection insurance and it had failed to ensure that the borrower had given fully informed consent, knowing that over half of the insurance sum was commission for the lender and a broker.
The court was required to determine issues in relation to a loan agreement between the claimant borrowers (Y) and the defendant lenders (N). Y, through a broker (B), had arranged to enter into an agreement with N for a consolidation loan which included approximately £15,000 for payment protection insurance (PPI). Evidence was given by one of Y that she was under the impression that if they did not agree to the PPI, they would not receive the loan. Prior to entering into the agreement, N telephoned Y. Y entered into the agreement, the PPI was paid and over half of the PPI sum was provided to N and B as commission. Y failed to make payments due under the agreement and the instant proceedings were commenced. The court was required to determine (i) whether there was an unfair relationship under the Consumer Credit Act 1974 s.140A; (ii) whether N, by paying B an undisclosed commission without Y's fully informed consent, had procured B to breach the fiduciary duty it owed to Y as Y's agent or because it stood in the position of a fiduciary; (iii) whether the agreement was a multiple agreement within s.18 and the PPI part was improperly executed.
Judgment accordingly. (1) The PPI was very expensive for what it provided. The amount of the commissions earned by B and N on its sale were not disclosed. If a customer was paying £15,000 for an insurance policy, he was entitled to know in the interests of fairness that less than one half of that was going to pay for the policy itself and more than one half was going to be paid in commission to the broker and the lender who were effectively selling the product to him. The fact of commission and the amount of commission were important. The amount was such that it would create an incentive to B to sell the product and thereby give rise to a potential conflict of interest with the customer. The primary duty of disclosure of the regulatory regime was on B but that did not remove the necessity for N to ensure that B had discharged his duty or, if not, to ensure that the amount of the commission was disclosed. The payment of commission affected B's independence and the way the customer might assess advice given by B. Further, Y being denied knowing how much commission B stood to receive if the PPI was sold might have affected whether they took at face value the assertion that if they did not take it out then they would not get the loan. N could easily have included some reference to the commission in the phone call and in that call it failed to remind Y of their right to cancel the PPI within 30 days. In the interests of fairness, N should have satisfied itself that Y had given fully informed consent to the agreement, knowing what it entailed. N had therefore not satisfied the court that the relationship between it and Y was fair. (2) There was no evidence to support the contention that B was Y's agent. In relation to the alleged fiduciary relationship, the evidence was limited to the fact that Y visited B to get a loan. That was not sufficient to conclude that a fiduciary relationship existed between them. (3) It was accepted that the loans were in different categories under the Act, namely that the cash loan was a debtor/creditor arrangement and that the PPI was a debtor/creditor/supplier arrangement, and that if they should be treated as separate agreements under s.18(2), the PPI part was a regulated agreement and statutory requirements had not been complied with. The PPI was a separate facility. It was an optional facility which could or could not be taken out by the customer. On the face of the agreement, it was a separate part of the loan in relation to the specific amount and in relation to its purpose. There were therefore two parts to the agreement, namely a cash loan part and a PPI policy part and the loans were for those two specific purposes and were different, National Westminster Bank Plc v Story [1999] Lloyd's Rep. Bank. 261 considered. Under s.18 it was therefore a multiple agreement.
Judge Platts
For the claimants: Bradley Say. For the defendants: Iain MacDonald.
A lender had not acted fairly when it made a loan which included a sum for payment protection insurance and it had failed to ensure that the borrower had given fully informed consent, knowing that over half of the insurance sum was commission for the lender and a broker.
The court was required to determine issues in relation to a loan agreement between the claimant borrowers (Y) and the defendant lenders (N). Y, through a broker (B), had arranged to enter into an agreement with N for a consolidation loan which included approximately £15,000 for payment protection insurance (PPI). Evidence was given by one of Y that she was under the impression that if they did not agree to the PPI, they would not receive the loan. Prior to entering into the agreement, N telephoned Y. Y entered into the agreement, the PPI was paid and over half of the PPI sum was provided to N and B as commission. Y failed to make payments due under the agreement and the instant proceedings were commenced. The court was required to determine (i) whether there was an unfair relationship under the Consumer Credit Act 1974 s.140A; (ii) whether N, by paying B an undisclosed commission without Y's fully informed consent, had procured B to breach the fiduciary duty it owed to Y as Y's agent or because it stood in the position of a fiduciary; (iii) whether the agreement was a multiple agreement within s.18 and the PPI part was improperly executed.
Judgment accordingly. (1) The PPI was very expensive for what it provided. The amount of the commissions earned by B and N on its sale were not disclosed. If a customer was paying £15,000 for an insurance policy, he was entitled to know in the interests of fairness that less than one half of that was going to pay for the policy itself and more than one half was going to be paid in commission to the broker and the lender who were effectively selling the product to him. The fact of commission and the amount of commission were important. The amount was such that it would create an incentive to B to sell the product and thereby give rise to a potential conflict of interest with the customer. The primary duty of disclosure of the regulatory regime was on B but that did not remove the necessity for N to ensure that B had discharged his duty or, if not, to ensure that the amount of the commission was disclosed. The payment of commission affected B's independence and the way the customer might assess advice given by B. Further, Y being denied knowing how much commission B stood to receive if the PPI was sold might have affected whether they took at face value the assertion that if they did not take it out then they would not get the loan. N could easily have included some reference to the commission in the phone call and in that call it failed to remind Y of their right to cancel the PPI within 30 days. In the interests of fairness, N should have satisfied itself that Y had given fully informed consent to the agreement, knowing what it entailed. N had therefore not satisfied the court that the relationship between it and Y was fair. (2) There was no evidence to support the contention that B was Y's agent. In relation to the alleged fiduciary relationship, the evidence was limited to the fact that Y visited B to get a loan. That was not sufficient to conclude that a fiduciary relationship existed between them. (3) It was accepted that the loans were in different categories under the Act, namely that the cash loan was a debtor/creditor arrangement and that the PPI was a debtor/creditor/supplier arrangement, and that if they should be treated as separate agreements under s.18(2), the PPI part was a regulated agreement and statutory requirements had not been complied with. The PPI was a separate facility. It was an optional facility which could or could not be taken out by the customer. On the face of the agreement, it was a separate part of the loan in relation to the specific amount and in relation to its purpose. There were therefore two parts to the agreement, namely a cash loan part and a PPI policy part and the loans were for those two specific purposes and were different, National Westminster Bank Plc v Story [1999] Lloyd's Rep. Bank. 261 considered. Under s.18 it was therefore a multiple agreement.
Judge Platts
For the claimants: Bradley Say. For the defendants: Iain MacDonald.
if you ask nicely, i may be able to find you a copy lol
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