New Legislation: Commission Disclosure on Consumer Credit Contracts
Recently, we caught up with our friends at One Funding, who updated us on some changes in the rules on commission disclosure when it comes to consumer credit agreements.
What has changed?
A pivotal Court of Appeal ruling on October 25, 2024, addressed the legality of undisclosed commissions paid by lenders to brokers in motor finance agreements. The court determined that such undisclosed commissions could constitute a breach of fiduciary duty owed by brokers to borrowers, potentially rendering the credit agreements unenforceable.
This ruling has prompted several lenders to reassess their commission disclosure practices. For instance, Metro Bank temporarily paused its asset finance lending to review its systems and legal documentation in response to the judgment. Similarly, Santander UK delayed its third-quarter results to evaluate the ruling’s impact on its operations.
Who is affected?
While the Court of Appeal’s decision directly pertains to consumer credit agreements, it has broader implications for the lending industry, including commercial lending. Lenders and brokers in the commercial sector are advised to review their commission disclosure practices to ensure compliance with fiduciary duties and to mitigate potential legal risks.
In light of recent legal developments, it is prudent for lenders and brokers to ensure that their commission disclosure practices are transparent and fully compliant with both regulatory requirements and fiduciary obligations. This approach will help maintain trust and integrity within the lending industry.
Lee Schofield (pictured), CEO of One.funding, comments on recent Court of Appeal ruling regarding commission disclosure in consumer credit agreements:
“At One.funding, we have been closely monitoring the recent Court of Appeal decision, which underscores the importance of transparency in commission disclosure between lenders and brokers. The ruling is a significant step forward in safeguarding borrowers’ interests and ensuring that brokers uphold their fiduciary duties. We fully support the need for clear and honest communication in all credit agreements. We believe that by embracing transparency, we can collectively build stronger, more trustworthy relationships with our clients, ultimately fostering greater confidence in the industry as a whole.’’
Why are we telling you?
We are aware that many of our commercial clients who have accessed finance for asset purchase or working capital for example, have experienced instances where the amount of commission received by the brokers has not been clear or disclosed. We felt it important to point out that new rules should bring more clarity to these types of lending streams.
Lee Schofield at One.funding added: “With the recent legal developments, it’s more important than ever for businesses to ensure that any commissions paid are fully disclosed. These changes will provide greater transparency. At One.funding, we are committed to supporting our clients to ensure that their financing agreements are clear, compliant, and fair.“
If you would like to know more about these rules, or generally about lending for business purposes, please contact Adam Aspden (Head of One.asset) on 0330 383 0493 or email adam@onefunding.co.uk.