What is an Unfair Relationship Claim?

20th January 2017 Blog

What is an Unfair Relationship Claim?

The Court of Appeal has ruled that the payment of procuration fee by lender to mortgage broker can be classed as an Unfair Relationship under s.140A of the Consumer Credit Act 1974 (CCA).

Who can claim an ‘Unfair Relationship’?

When a borrower has taken out a loan, and the lender has not provided sufficient advice and disclosed the exact amount of commission that the broker was receiving, The Court of Appeal’s Civil Division has allowed the lender to make a claim.

Why is the Court granting ‘Unfair Relationship Claims’ under s.140A of the Consumer Credit Act 1974 (CCA)?

Mr Nelmes brought proceedings alleging that the relationship with his lender and mortgage broker was unfair under s.140 of the CCA.

The start of the Nelmes v NRAM case…

Mr Nelmes owned a portfolio of buy-to-let properties and in 2007 he instructed a broker to act for him in the defiance process. The broker introduced Mr Nelmes to NRAM Plc who sought refinance and additional monies for equity release.

Mr Nelmes’ £2,148,300 loan to secure the portfolio was subject to an agreed maximum LTV of 70%. A £21,483 arrangement fee was paid to the lender and £16,112.25 to the broker. Without being informed, the lender paid the broker commission which came to half of the arrangement fee; £10,741.50.

In 2008, Mr Nelmes fell into arrears on the payments due. In 2011 NRAM stated that a revaluation of Mr Nelmes’ property portfolio would be occurring. In 2013, the valuations were carried out by NRAM which resulted in the LTV ratio rising to 148%. By July 2013, NRAM had ordered Mr Nelmes to pay the debt within 7 days or there would be consequences.

Mr Nelmes claimed that the lending was unfair and asked the court to grant him relief. The Court rejected all but one of Mr Nelmes’ allegations; the broker owes a duty of “undivided loyalty” to the customer and NRAM did not.