It was back in 2006, that Parliament recognised that the consumer needed more protection against banks, brokers and lenders. A rise in unscrupulous practices by lenders and brokers, leading to unfair treatment of the customer paved the way for the introducing of new grounds for complaints – an Unfair Relationship Claim. As a result, the Consumer Credit Act 1974 was amended in 2006 with a new section 140A to further support victims of mis-sold financial products.
How is an unfair relationship established?
An unfair relationship is deemed to exist if a lender has mis-sold a financial product for personal gain. This applies to the relationships that are created with the purchase of financial products such as mortgages or loans.
Many lenders paid commission to brokers and intermediaries who were involved in arranging loans and mortgages. This commission was then added to the cost of the loan without the customer wanting it and/or being aware of it.
If the customer taking out a loan is not provided with sufficient advice or disclosure of the commissions by the lender, it is highly likely that they have mis-sold the product.
The unfair relationships test
Section 140A Unfair relationships between creditors and debtors from the 2006 Consumer Credit Act allows courts to make any of the wide ranging orders if the court determines that the relationship between the creditor and the debtor arising out of the agreement (or agreement taken with any related agreement) is unfair because of one or more of the following:-
- (a) any of the terms of the agreement or of any related agreement;
- (b) the way in which the creditor has exercised or enforced any of his rights under the agreement or any related agreement;
- (c) any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement)
The test was forumulated to focus on three aspects out of which an unfair relationship might arise; the first looks specifically at the terms of the agreement (or any related agreement) and the other two look specially at the how the creditor acted and dealt with the debtor.
In addition to the above the courts may also take into account any or all matters it considers to be relevant to this assessment, including matters relevant to both the debtor and creditor.
If the relationship is found to be unfair by the Courts, the lender can be ordered to:
- Pay compensation to the borrower
- Write off all or part of the loan
- Do or not do something in relation to the agreement
The unfair relationship provision has tried to ensure that the balance of power is in the consumer’s favour when making an Unfair Relationship Claim.
Are you eligible to make an Unfair Relationship Claim?
Do you believe your lender formed an unfair relationship with you and as a result, you lost money? You may be entitled to an Unfair Relationship Claim.