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Yates v Nemo [2010]
Yates v Nemo [2010]
Brief Description: The borrowers, Yates and Lorenzelli, alleged that there was an unfair relationship under section 140A of the Consumer Credit Act; that the creditor procured a breach by the broker of the fiduciary duty owed by it to the borrowers by paying to the broker an undisclosed commission; and that the agreement was a multiple agreement within section 18 of the Act and the part relating to payment protection insurance (PPI) was improperly executed.
The judge noted that the claim of unfairness was raised by the borrowers and so the burden of proof was on the creditor to prove the contrary. He found that:
Result: Unfair relationship under section 140A. The judge ordered the PPI part of the loan agreement to be rescinded.
Full Judgment: Yates v Nemo - HH Judge PlattsManchester.pdf
Brief Description: The borrowers, Yates and Lorenzelli, alleged that there was an unfair relationship under section 140A of the Consumer Credit Act; that the creditor procured a breach by the broker of the fiduciary duty owed by it to the borrowers by paying to the broker an undisclosed commission; and that the agreement was a multiple agreement within section 18 of the Act and the part relating to payment protection insurance (PPI) was improperly executed.
The judge noted that the claim of unfairness was raised by the borrowers and so the burden of proof was on the creditor to prove the contrary. He found that:
The PPI policy appeared to be very expensive for what it offered.
Of the PPI premium of £15,468, he was told that 57.45% (£8,886) was retained by the creditor effectively as commission, and of this £4,232 was paid to the broker.
Although the fact that commission would be likely to be paid was known to the borrowers through the FISA booklet, the amounts were not.
The borrowers were led to understand that the PPI had to be taken out as a condition of the loan. The fact that the broker received £4,322 if it was taken out clearly created an inducement to sell the policy.
If the customer was paying £15,000 for a policy of insurance he was entitled to know in the interests of fairness that less than one half of that was actually 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.
The amount of the commission created an incentive to the broker to sell the product and thereby gave rise to a potential conflict of interest with the customer. Having paid that commission in that amount and thereby having created the conflict for the broker, the lender could not wash his hands of it by leaving everything and passing all responsibility to the broker.
Not only did the payment of commission affect the broker’s independence, it also affected the way the customer might assess any advice given by the broker.
On the other points, the judge found that a fiduciary relationship did not exist in this case and that the agreement was a multiple agreement under section 18 of the Act.Of the PPI premium of £15,468, he was told that 57.45% (£8,886) was retained by the creditor effectively as commission, and of this £4,232 was paid to the broker.
Although the fact that commission would be likely to be paid was known to the borrowers through the FISA booklet, the amounts were not.
The borrowers were led to understand that the PPI had to be taken out as a condition of the loan. The fact that the broker received £4,322 if it was taken out clearly created an inducement to sell the policy.
If the customer was paying £15,000 for a policy of insurance he was entitled to know in the interests of fairness that less than one half of that was actually 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.
The amount of the commission created an incentive to the broker to sell the product and thereby gave rise to a potential conflict of interest with the customer. Having paid that commission in that amount and thereby having created the conflict for the broker, the lender could not wash his hands of it by leaving everything and passing all responsibility to the broker.
Not only did the payment of commission affect the broker’s independence, it also affected the way the customer might assess any advice given by the broker.
Result: Unfair relationship under section 140A. The judge ordered the PPI part of the loan agreement to be rescinded.
Full Judgment: Yates v Nemo - HH Judge PlattsManchester.pdf
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