Success for Rogers & Norton Litigation Team in Business-Purpose Finance Dispute
Background
Our Litigation Team recently achieved a successful outcome for a finance provider in a complaint brought before the Financial Ombudsman Service (FOS). The complaint concerned a consumer finance agreement used to purchase a leisure asset.
The complainant alleged that the finance had been unaffordable and mis-sold, claiming the lender had failed to properly assess his financial circumstances. However, the lender maintained that the finance was provided responsibly, following a full affordability review and based on accurate information supplied by the borrower.
Despite the lender’s detail response, the complaint was referred to the Ombudsman after an initial FOS investigator recommended it be upheld.
The Key Issue
The dispute centred on whether the agreement fell within the Ombudsman’s jurisdiction under the Financial Conduct Authority’s rules and the Consumer Credit Act 1974 (CCA). Specifically, the issue was whether the finance agreement was a ‘regulated consumer credit agreement’ or an ‘exempt business-purpose agreement’ under Article 60C of the Financial Services and Markets Act (Regulated Activities) Order 2001.
The borrower contended that the purchase was for personal use, with any rental activity being merely incidental. The lender argued, however, that the complainant had entered the finance agreement ‘wholly or predominantly for business purposes’, given that the asset was used extensively to generate income through a rental scheme.
The Decision
The Ombudsman agreed with our client’s position, concluding that the agreement was exempt from regulation because:
- The amount of credit exceeded £25,000, satisfying the first exemption criterion; and
- The borrower had entered into the agreement predominantly for business purposes, as evidenced by his active participation in a structured rental scheme designed to generate income and offset costs.
Importantly, the Ombudsman clarified that the absence of a signed business-purpose declaration does not automatically prevent an agreement from being considered a business-purpose agreement under Section 16B of the CCA. The relevant test focuses on the borrower’s intention at the time of entering the agreement, not merely the existence of a formal declaration.
Consequently, the Ombudsman determined that the complaint fell outside its jurisdiction and could not be considered on its merits.
Key Takeaways
- Jurisdictional limits of the Financial Ombudsman Service: This case reinforced that the Ombudsman’s powers are limited to regulated activities. Agreements that meet the criteria for a business-purpose exemption fall outside its remit, regardless of the borrower’s subsequent use of the asset.
- Business-purpose agreements extend beyond traditional enterprises: The Ombudsman’s decision highlights that even where an individual describes a purchase as “personal”, if the asset is used in a way that generates income or offsets personal liabilities, it may still be treated as business in nature.
- Declaration is not a prerequisite for exemption: Section 16B of the CCA creates a presumption, not a precondition. A signed declaration simplifies matters but is not required for an agreement to qualify as business-proposed. The factual context and intention at the time of contracting remain decisive.
Conclusion
This decision is an important reminder for finance providers that robust documentation, affordability assessments and clarity around customer intentions can be critical in defending complaints. It also underscores the boundaries of the FOS’s jurisdiction and the continued relevant of business-proposed exemptions for higher-value finance agreements.
Our client’s successful outcome reflects the value of careful legal and regulatory analysis in responding to consumer credit disputes.
How we can help
Our specialist Litigation Team regularly advises lenders and intermediaries on disputes, as well as both Country and High Court proceedings involving regulatory compliance issues, Consumer Credit Act issues and financial agreements.
For further information on how we can support your business in managing or defending finance-related complaints, please contact Peter Hastings at ph@rogers-norton.co.uk or call 01603 675639.