In the case of Harrison & ANOR v Black Horse [2011] EWCA Civ 1128 it was held that a lender’s failure to disclose to borrowers that it received commission for selling them payment protection insurance did not amount to unfairness under s.140A and s.140B Consumer Credit Act 1974 (the Act).

The borrowers were told that the Payment Protection Plan premium was £10,200. However, they were not informed that of that sum, 87% was retained by the lender. The borrowers’ primary argument was that, in the absence of an explanation, the commission was so egregious that it gave rise to a conflict of interest, which the lender had a duty to disclose. Lord Justice Tomlinson conceded that the commission was quite startling, but considered that the mere size of the undisclosed commission was insufficient to constitute unfairness.

It was made clear that the touchstone must be the standard imposed by the regulatory authorities pursuant to their statutory duties. Since the Insurance Conduct of Business (ICOB) Rules do not impose an obligation to disclose receipt of commission it would be an anomalous result if a lender had to meet such an obligation in order to escape a finding of unfairness under s.140A of the Act. Tomlinson LJ commented that in any other context, the suggestion that charging a high price for a product freely and readily available more cheaply elsewhere in the market was indicative of unfairness in the relationship between seller and buyer would be met with incomprehension.

This decision makes it clear that where a lender ensures that its internal procedures and systems are compliant with the ICOB Rules, it will be very difficult to persuade the court that there is an unfair relationship between the parties under the Act.