The Bank-Customer Relationship Flashcards
1
Q
What Regimes of Law govern the Bank-Customer Relationship?
A
A contractual debtor-creditor relationship,* which is governed by statute and, under minor exceptions, equity.
Foley v Hill (1848) 2 HLC 28.
2
Q
What is the Bank’s Mandate?
A
The authority for the Bank to act in particular way, as derives from its contract with the Customer. Ultra Vires acts are not binding on the Customer.
3
Q
When does the Bank-Customer Relationship begin?
A
When the Bank agrees to open an account for the Customer,* which it shall do on the Customer’s instruction.**
Ladbroke v Todd [1914] 30 TLR 433; Woods v Martins Bank [1958] 3 All ER 166
The FCA’s Banking Conduct of Business and the Lending Code suggest proper conduct be owed even to non-accountholders, as well as impose further duties alongside FSMA 2000 and other legislations.
4
Q
Do Customers have a Right to a Bank Account?
A
Yes.
The Payment Accounts Regulations 2015.
5
Q
Once deposited, does the Customer’s money continue to belong to him?
A
No. At that point, the Bank owns the money, and the Customer only possesses a claim against the Bank for the relevant sum.
Foley v Hill (1848) 2 HLC 28.
6
Q
Is the Money deposited in a Bank subject to a Trust in favor of the Customer?
A
No.
Joachimson v SBC [1921] 3 KB 110.
7
Q
In Retail Banking, what Services does the Bank provide the Customer?
A
Primarily, Banks provide Customers with:
- Current and Savings Accounts;
- Credit;
- Investment advice; and
- Proprietary trading services.
More sophisticated customers may have access to the Bank’s fee-earning businesses, i.e. M&A, IPOs, Underwriting, etc.
8
Q
Under its Contract with the Customer, what are the Bank’s Core Obligations to the Customer?
A
To honor payments and repay credited sums, naturally under the relevant terms and conditions.
9
Q
What happens if a Bank Dishonors a Payment without Just Reason?
A
It is liable to pay damages for breach of contract,* and potentially for defamation,** although this is harder.
*Kpohraror v Woolwich Building Society [1996] 4 AER 119; **Jayson v Midland Bank [1968] 1 WLR 956
Damages may be nominal or substantive, depending on the case.
10
Q
When will a bank be taken to have Just Reason for Dishonoring a Payment?
A
If the Customer:
- Is Dead.
- Gives ambiguous instructions.
- Lacks funds or access to overdraft.
- Countermands a set of earlier instructions.
- Delivers out-of-date payment instructions (6 months).
- Account subject to a Third Party Debt Order or Freezing Order.
- Has petitioned for bankruptcy, insolvency, or voluntary liquidation (§127 – IA 1986).
- Gives the Bank reasonable grounds to believe the instructions are without authority, i.e. fraudulent.*
- Is under suspicion for a possible crime and would therefore cause the Bank to breach §328 POCA 2002.
*Lipkin Gorman v Karpnale [1991] 2 AC 548
11
Q
Does the Bank owe the Customer a Duty of Care?
A
Yes, both in contract* and in tort.** It must foremost strictly adhere to the Customer’s Mandate, amongst other things.
*CRA 2015 – §49; **Henderson v Merrett [1994] UKHL 5.
The Bank-Customer relationship is an Agent-Principal relationship. The FCA Principles impose further duties on the Bank.
12
Q
Does the Customer owe the Bank a Duty of Care?
A
Yes. It must foremost issue clear and unambiguous instructions* and inform the bank of real or potential fraudulent activity on its account(s), amongst other things.
*Midland Bank v Seymour [1955] 2 Lloyd’s Rep. 147
13
Q
Is the Bank the Customer’s Fiduciary?
A
Almost certainly not.* Only when the Bank assumes a duty of trust, confidence, and loyalty to the Customer will it become a Fiduciary.**
*Wright v HSBC [2006] EWHC 1473; **Bristol and West Building Society v Mothew [1998] EWCA Civ 533.
Material to demonstrating a Fiduciary Duty is mutual understanding of a relinquishment of self-interest or the exercise of unilateral powers which can expose another to vulnerability.
14
Q
What are the Three Tests for Ascertaining the Existence of a Fiduciary Duty of Care?
A
Evincing:
- A mutual understanding of a relinquishment of self-interest and promise to act only on behalf of another;
- The exercise of unilateral powers which can expose another to vulnerability; or
- The provision of advice in a confidential relationship which, when relied upon, results in the Defendant realizing some gain.
Scavarelli v Bank of Montreal [2004] OTC. 36 (SC), utilized in Lloyds v Bundy [1975] EWCA 8.
It is critical to emphasize the abnormality of cases like Bundy.
15
Q
Can a Fiduciary Duty arise when a Bank provies a Customer with Investment Advice?
A
Extremely exceptionally.
Woods v Martins Bank [1959] 1 QB 55; Commonwealth Bank of Australia v Smith [1991] FCA 481.
Frankly, unless such an Arrangement was specifically requested by the Customer and sanctioned by the Bank, then there’s virtually no chance.
16
Q
Do Banks generally owe a Duty of Care to advise on the Merits of a Transaction?
A
No, but if one is assumed, it must be carried out with reasonable care and skill.”
Thornbridge Ltd. v Barclays Bank [2015] EWHC 3430, referencing Hedley Byrne.
17
Q
Is the mere Giving of Advice sufficient to give rise to an Advisory Duty of Care?
A
No. The Bank must go beyond the, “normal recommendations…given in the daily interactions,” between it and its Customers, and speak of a particular product or service on offer, not just generally.
Thornbridge Ltd. v Barclays Bank [2015] EWHC 3430.
18
Q
How does the FCA distinguished between Advice and Information?
A
Advice, “requires an element of opinion,” on the Advisor’s part, whereas Information, “involves statements of fact or figures.”
FCA PERG – 8.28.1G
“In general terms, simply giving information without making any comment or value judgment on its relevance to decisions which an investor may make is not advice.”
FCA PERG – 8.28.2G.
19
Q
Can the Bank contractually Disclaim a Fiduciary Duty?
A
Yes.
Henderson v Merrett [1994] UKHL 5; IFE v Goldman Sachs [2006] EWHC 2887 (Comm).
20
Q
When should a Banker act upon a Suspicion of Fraud?
A
“[When] a reasonable and honest Banker, aware of the facts, would have concluded that there was a serious or real possibility, albeit not a probability, that its customer was being defrauded.”
Selangor Rubber v Craddock (No 3) [1968] 1 WLR 1555.
21
Q
Does the Bank have a Duty to Explain the Nature and Effect of a Security to a Customer?
A
Yes.
Cornish v Midland Bank [1985] 3 All ER.
22
Q
What are a Bank’s potential Liabilities in Tort?
A
See Legal Aspects: Syndicated Lending.
23
Q
Does a Bank owe a Duty of Care when providing Investment Advice?
A
Yes,* although not if the investment was independently appraised and the Customer relied thereon.**
*Woods v Martins Bank [1958] 3 All ER 166; **Investors Compensation Scheme v West Bromwich Building Society [1999] UKHL 28.
24
Q
Having assumed an Advisory Duty, what denotes the Bank’s Duty of Care?
A
An obligation to act with the skill and care to be expected of a reasonably competent financial adviser,* with reference to the extent of responsibility assumed by the Bank.**
*Matrix Securities v Theodore Goddard [1998] PNLR 290; **Property Alliance Group v RBS [2018] EWCA Civ 355
Therefore, the boundaries of any given advisory duty may vary greatly based on the circumstances.
25
What should a Bank do if it receives Ambiguous Instructions?
If the ambiguity is **minor**, it **may adopt a reasonable meaning**, but if it is **major**, it **should seek further clarification**.
## Footnote
*European Asian Bank v Punjab and Sind Bank (No. 2)* [1983] 1 WLR 642.
26
What happens if the Bank acts on Instructions it knows to be Dishonest, or is Reckless to the fact?
It **will be liable for the Customer's loss** as a result of it so acting, the **test of reasonableness applying**.
## Footnote
*Barclays Bank v Quincecare* [1988] FLR 166.
27
What is a Penalty Clause?
A clause which **imposes a cost** on a breach of contract which is **out all proportion to the legitimate commercial interests** of the aggreived.
28
Are Penalty Clauses Enforceable?
**No**. This rule also applies to provisions governing the withholding of payments and the transfer of property on breach of contract.
## Footnote
*Cavendish Square Holdings v Makdessi* [2015] UKSC 67.
29
If an Issue between the Bank and Customer is unresolved, what recourse does the Customer have?
The **Courts** or the **Ombudsman**. **Only breaches of the FCA Rules**, rather than Principles, are pursuable in court,\* and **parallel pursuit is prohibited**.
## Footnote
\*FSMA 2000 -- §138D.
30
If the Bank receives a complaint from a Customer, must it attempt to Resolve it?
**Yes**.
## Footnote
FCA DISP -- 1.1.1.
31
On what Grounds does the Ombudsman decide Disputes?
**Fairness** and **reasonabless** given the particular circumstances,\* on which it **may elect to award compensation**.\*\*
## Footnote
\*FSMA 2000 -- §228(2); \*\*FSMA 2000 -- §229.
32
What is the Advantage of the Ombudsman over the Courts?
Its approach empahsizes **speed** and **accessability**, and its **informal non-adversarial style helps maintain contractual relationships** post-dispute.
33
What are the Categories of Eligible Complianat for the Ombudsman?
* **Consumers**.
* **SMEs**.
* **Charities**.
* **Trustees** of Trusts.
An SME is an enterprise with fewer than 50 employees, and less than £6.5m and £5m in annual turnover and balance sheet assets, respectively.
34
Are the Findings of the Ombudsman Binding on the Respondent?
**Yes**, but **only if the Complainant accepts the findings**.\* A Respondent's only other recourse is **judicial review**, but this is **quite** **unlikely to work** due to the Court's reluctance to interfere.\*\*
## Footnote
\*FSMA 2000 -- §228(5); *R (Heather Moor & Edgecomb Ltd.) v Financial Ombudsman Service* [2008] Bus LR 1486.
35
Are the Findings of the Ombudsman binding on the Court?
**Yes**, under the **principle of *res judicata***, i.e. the notion that one judicial body's decision on a matter already judged binds another.
## Footnote
*Clark v In Focus Asset Management Ltd.* [2014] EWCA Civ 118.
36
In the Bank-Customer relationship, what does the notion of 'Unfariness' pertain to?
**Contract terms** and **consumer notices**, both of which are non-binding if found to be unfair.
## Footnote
CRA 2015 -- §62(1)-(2).
37
How must Contract Terms in an Agreement for Banking Services be written?
**Legibly** and in **plain and intelligble language**,\* with the test being whether an **average consumer would understand the terms and their implications**.\*\*
## Footnote
\*CRA 2015 -- §68(2); \*\**Kásler v OTP Jelzálogbank Zrt* [2014] WLR (D) 180.
A consumer is defined as a natural person who is acting wholly or mainly outside that individual’s trade, business, craft or profession.
CRA 2015 -- §2(3).
38
Do Considerations of Unfairness apply to Core Provisions?
**No**.
## Footnote
CRA 2015 -- §64(1).
A core provision is, "the definition of the main subject matter of the contract... [or] the adequacy of the price and remuneration, on the one hand, as against the services or goods supplies in exchange, on the other."
39
If ever you need a list of Exemplary Unfair Terms, where should You go?
**Schedule 2**, **Part 1** of the Consumer Rights Act 2015.
40
When will a Term be deemed Unfair?
When it contravenes, "the **requirement of good faith**, causing a **significant imbalance in the parties’ rights and obligations** arising under the contract, to the **detriment of the consumer**."
## Footnote
CRA 2015 -- §62(4).
An examination for unfairness involves judging the relevant context against the above standard.
CRA 2015 -- §62(5).
41
In what way does the Consumer Credit Act 2006's Examination of Fairness differ from the CRA 2015?
It considers **terms of contract** in addition to **how they are enforced** and **the Bank's condcut** in its determination of unfairness.
## Footnote
CCA 2006 -- §140A, §140B, and §20 (amongst others).
42
How does the Court construe the Concept of Fairness?
* **The factual matrix**
* **The Borrower's characteristics**, e.g. sophistication and temperment.
* **The Borrower's knowledge**, both real and constructive.
* **The Bank's conduct** in light of the Borrower's characteristics and knowledge.
*Plevin v Paragon Personal Finance* [2014] UKSC 61.
43
Can the Bank Exclude its potential Liabilities in Tort?
See Legal Aspects: Syndicated Lending.
## Footnote
Specifically, see the Cards on UCTA 1977, and note that §3 will apply.
44
What are the Codes which govern the Banking Sector?
* **The FCA Handbook**.
* **The Standards of Lending Practice**.
45
Can a Bank close an Account at Will?
**Yes**, but it **must give sufficient notice of its intention**.
## Footnote
Subject to Tip-Off offences.
46
What is a Dormant Account?
An account that has been **untouched for at least 15 years**.
47
Is a Bank allowed to use the Funds in a Dormant Bank Account?
**Yes**, but **only to channel them to RFL** so that they may be put towards good causes. **Customers can reclaim the funds at any point**.
## Footnote
Dormant Bank and Building Society Accounts Act 2008.
'RFL' stands for Reclaim Fund Ltd.
48
What happens if the Bank makes an Unauthorized Payment?
It **must return the funds without undue delay** unless it has **reasonable suspicions of fraudulent activity**.
## Footnote
FCA, BCOBS -- 5.1.11.
Any charges or interest must also be refunded,
49
When can the Bank refuse to refund an Unauthorized Payment?
* If it can prove the **Customer** either **authorized the transaction** or **was at fault**, whether through **fraud** or **negligence**; or
* If the Customer **delayed in notifying the Bank** (13 months).
FCA, BCOBS -- 5.1.12.
The customer may have to pay up to the first £35 of an unauthorised transaction if their card has been lost, stolen, or misappropriated, unless this was not detectable by the customer, or the bank, its agents, or staff were at fault.
FCA, BCOBS -- 5.1.12.
50
Does the Bank have a Right of Set-Off?
**Yes**. However, it **should exercise it cautiously**, giving the Customer fair notice and refraining if the funds are necessary for essential expenses.
## Footnote
FCA, BCOBS -- 5.1.3A.
51
What is Misselling?
The **deliberate**, **reckless**, or **negligent sale of products or services** in circumstances where the contract is either **misrepresented** or the **product or service is unsuitable** for the Customer's needs, ultimately **leading to a suffered loss**.
## Footnote
Wikipedia.
52
What is the Cause of Misselling?
**Information asymmetry** in conjunction with **perverse incentives**.
## Footnote
Banks understand their financial products and the risk associated therewith better than their Customers. Profit incentivizes them to target those Customers who have neither the time, inclination, nor ability to comprehend these products in their proper context, realities which lead such Customers to place their trust and faith in their Banks.
53
Who is Responsible for Curbing Misselling?
**The FCA**, as Misselling falls within its greater **Conduct of Business remit**.
## Footnote
FSMA 2000 -- Part 1A, Chapter 1C.
54
What are the Licensing Requirements for Providers of Financial Services?
**All financial services providers must be licensed** by the FCA if they are to carry out regulated activities,\* **on pain of criminal liability**.\*\*
## Footnote
\*FSMA 2000 -- §19; \*\*FSMA 2000 -- §26(1).
A full list of regulated activities can be found here.\*
\*FSMA 2000 (Carrying on Regulated Activities by way of Business) Order, SI 2001/1177.
55
When Enforcing a Breach, what must the FCA demonstrate?
* **Elements** of the relevant offence.
* **Remoteness**.
* **Causation**.
* **Damage**.
FSMA 2000 -- §130D.
56
What is the Test for Causation?
The '**But For**' **Test**.
## Footnote
*Saville v Central Capital Plc.* [2014] EWCA Civ 337.
57
What are some of the Unique Considerations that go into Examining whether the Bank owes a Customer a Duty of Care?
* Any **supporting regulatory schemes** relevant to the financial product or service in question.
* **Independent review** by a skilled person on behalf of the Customer.\*
* **Conflicts of interest**.
*CGL Group Ltd, v Royal Bank of Scotland* [2017] EWCA Civ 1073; \*FSMA 2000 -- §166.
58
How do the Bank's Common-Law and Statutory Duties of Care towards the Customer differ?
The Statutory Duty extends **beyond mere reasonable care and skill**, incorporating elements of **honesty and fairness**.
## Footnote
*Green v Royal Bank of Scotland* [2013] EWCA Civ 1197.
59
What is a Consumer Redress Scheme?
A **systematic review** of **sector-wide compliance with regulations** on a particular **product or activity**, with the **ability to compensate Customers** for any losses suffered.
## Footnote
FSMA 2000 -- §404.
Affected individuals are not obliged to accept redress under the Scheme, and may resort to either the Court or the Ombudsman.
60
§404 is regarded by Banks as a Serious Threat. How do Banks go about Mitigating the possibility of its use?
If the threat looms, Banks may **elect to launch a voluntary scheme** (with FCA approval) to address relevant concerns.
61
From the Bank's standpoint, what are the Advantages of a Consumer Redress Scheme as compared to a Class Action?
* **Positive PR**, in the context of voluntary schemes.
* **Fewer legal costs**.
* **Faster resolution**.
* **More satisfactory resolution** from a Customer standpoint, since
* Fewer Customers may otherwise participate under a Class Action given its very involved nature.
* No need for any claim management firms who would otherwise take a large cut.
62
Within the FCA's Handbook is the Conduct of Business Sourcebook, a highly important source of Bank Duties. What are its most relevant Rules with respect to Misselling?
* 2.1.1.
* 2.1.2.
* 2.2.1.
* 4.2.1.
* 4.5.2.
* 9.2.1.
* 9.2.2.
* 10.3.
* 14.3.2.
63
What is a Financial Promotion?
"An **invitation** or **inducement** **to engage in investment activity** that is communicated in the course of business."
## Footnote
FCA Handbook Glossary.
This includes mortgages.
64
What does COBS 2.1.1 state?
"A firm **must act honestly**, **fairly** and **professionally** in accordance with the **best interests of its client**." This Rule **disapplies** where **other** regulatory and contractual **obligations are insufficient** to win a case.\*
## Footnote
*ED&F Man Commodity Advisers v Fluxo-Cane Overseas* [2010] EWHC 212.
This is otherwise known as the Client's Best Interest Rule.
65
What does COBS 2.1.2 state?
"A firm **must not**... **seek to**... **exclude or restrict** or... rely on any exclusion or restriction of **any duty or liability it may have to a Client under the regulatory system**."
66
What does COBS 2.2.1 state?
To its Clients, a Firm must provide **appropriate and comprehensible information** regarding its:
* **Business and services**;
* **Costs and associated charges**; and
* Proposed **investments and strategies**, and **guidance** thereon.
So as to allow the Client to **reasonably comprehend the nature** of and **risk** involved in any product or service and to **make an informed decision** thereabout.
67
What does COBS 4.2.1 state?
"A firm **must ensure** that a **communication** or a **financial promotion** is **fair**, **clear** and **not misleading**."
68
What does COBS 4.5.2 state?
A firm **must ensure** that **communications** and **promotional material**:
* Is **accurate**, giving a **fair and prominent indication of relevant risks when citing the potential benefits** of a product or service;
* **Prominently displays relevant risks** on presentation material.
* Is **sufficient** and **understandable** from the standpoint of whomever it is intended for or will likely receive it;
* **Does not disguise**, **diminish** or **obscure** important items, statements or warnings;
* Is **up-to-date** and **relevant** to the communications channel used;
* **Performs comparisons meaningfully and fairly** (if used).
69
What does COBS 9.2.1 state?
"A firm **must take reasonable steps** to ensure that a personal **recommendation**, or a decision to trade, **is suitable for its Client**," and in doing so, "**obtain** the **necessary information** regarding the Client's:
* **knowledge** and **experience in the investment field** relevant to the specific type of designated investment or service;
* **financial situation**; and
* **investment objective**."
70
What does COBS 9.2.2 state?
A Firm **must obtain sufficient information** from the Client to **understand the essential facts** about him and have **reasonable grounds for believing** that its recommendation:
* **Meets his investment objectives**;
* **Does not incur an unsustainable financial risk**, as delineated by his investment objectives; and
* **Is comprehensible** to him from a **risk-management standpoint**, given his **experience** and **knowledge**.
71
What does COBS 10.3 state?
* **According to received information**, the Firm **must warn the Client** if it believes if it **believes a product or service is inappropriate** for him.
* If **Client non-cooperation** results in **insufficient or no information received**, the Firm **must warn the Client of its decision's implications**, i.e. no determination of appropriateness.
* If the **Client** nevertheless **wishes to continue**, the Firm **may elect to refuse** if the circumstances so warrant.
72
What does COBS 14.3.2 state?
The Firm **must provide** the Client with a **description** of a product or service which **explains its nature and risks**, **as a designated investment**, in **sufficient detail** to enable the making of an **informed decision**.
73
What is the Core Philosophy of the Consumer Credit Act 1974?
**Freedom through information**: to **encourage competition** amongst Banks by **mandating detailed disclosure obligations**, thereby **reducing information asymmetries** and **empowering Customers**.
## Footnote
An ideal premised on the notion that consumer ignorance was a primary source of market failures in banking.
74
How does the CCA 1974 define 'Credit'?
"A cash loan, and **any** other **form of financial accommodation**."
## Footnote
CCA 1974 -- §9.
75
What is a Consumer Credit Agreement under the CCA 1974?
An agreement between a **natural person**, **sole trader**, or **partnership of less than four people** and **a Creditor** in which the **latter provides the former with credit of any amount**.
## Footnote
CCA 1974 -- §8 and §189.
Similar definitions can be found in the The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 (**RAO**), specifically under Articles 60B(3) and 64L(1).
76
When will Credit be deemed to have been Extended?
When the **Debtor** is granted the **contractual right to defer paying a debt**, which would **otherwise fall due**, **to a later date**.
## Footnote
*Dimond v Lovell* [2002] 1 AC 384.
77
What is the Difference between Running-Account and Fixed-Sum Credit?
The same distinction as between a Revolving and Term Loan Facility: the **former may be cyclically drawn down and paid up**, while the **latter is for a pre-determined sum**.
## Footnote
CCA 1974 -- §10.
78
What is the Difference between Restricted-Use Credit Agreements (RUCAs) and Unrestricted-Use Credit Agreements (URUCAs)?
The **former** are pursuant to a **pre-specified purpose**, and the **credit** extended thereby **can only be used therefore**, while the **latter are not**.
CCA 1974 -- §11.
79
What are the Three Types of Debtor-Creditor-Supplier Agreements?
* **RUCAs** to finance a **transaction between the Debtor and Creditor**, in which case the **latter is also the Supplier**.
* **RUCAs** to finance a **transaction between the Debtor and a Supplier**, **with whom the Creditor has or shall have an** **arrangement** of some sort.
* **URUCAs** made under **pre-existing arrangements** between the **Creditor and Supplier** that the **finance will be used to fund a deal between the Debtor and Supplier**.
CCA 1974 -- §11 and §12.
80
What are the Three Types of Debtor-Creditor-Agreements?
* **RUCAs** to finance a **transaction between the Debtor and Creditor**, with whom the **Creditor does not or shall not have an arrangement**.
* **RUCAs** to **finance an existing indebtedness of the Debtor**.
* **URUCAs** made under **no pre-existing arrangements between the Creditor and Supplier** other than the knowledge that the Debtor will use finance to fund a transaction between it and the Supplier.
CCA 1974 -- §11-§13.
81
What Agreements are Exempt under either the CCA 1974 or the RAO?
**Any agreement falling without §8** is unregulated by the **CCA 1974**, e.g. agreements with LLCs, whereas **agreements falling without Art. 60C-60H** are unregulated by the RAO.
82
What is the Effect of entering into a Credit Agreement with an Unauthorized Lender?
The **contract is unenforcable**, the **Debtor is entitled to recover damages** and **any transferred property**, and the **Creditor is criminally liable**.
## Footnote
FSMA 2000 -- §380-§382.
83
Consumer Credit is regulated by the FCA. Which of its Sourcebooks apply to this area?
The **Consumer Credit Sourcebook** (**CONC**).
84
What are the Three Core Characteristics of a CONC-Compliant Financial Promotion?
**Fairness**, **Clarity**, and **Forthrightness**. Pursuant to these traits, the Creditor must ensure that its Promotion is:
* **Clearly identifiable** as an advertisment;
* **Accurate**;
* **Fair** and **balanced** in its **representation of rewards and risks**;
* **Fair** and **balanced** in any **comparisons** it makes;
* **Presented in an understandable fashion** from the standpoint of the target demographic or those who will likely receive it; and
* **Not disguising**, omitting, diminishing, or obscuring **any important information**, **statements** or **warnings**.
FCA, CONC -- 3.3. Mirrored by FCA, MCOB -- 3A.2-3A.3.
85
What is the Representative Example Requisite?
All Financial Promotions which **indicate an amount relating to the cost of credit must include a very detailed example** which **illustrates the cost's implications**.
## Footnote
FCA, CONC -- 3.5.3 - 3.5.5. Mirrored by FCA, MCOB -- 3A.5.
86
When must a Financial Promotion include APR?
If the Promotion states, implies, or includes that:
* **Credit is available to individuals who might otherwise consider their access to credit restricted**;
* **Its product compares favorably** to the credit, whether express or implied, of another person, product or service;
* **Discounts or other incentives** to apply for credit or enter into an agreement therefor.
FCA, CONC -- 3.5.7.
87
If Anciliary Services form a part of the Credit Agreement, must they be Disclosed in the Financial Promotion?
**Yes**.
## Footnote
FCA, CONC -- 3.5.7(2)
88
Can Phrases like 'Interest Free' or 'No Deposit' be Bandied about freely?
**No**. This extends to the use of '**weekly equivalents**'\* or other tools which attempt to diminish the product's cost.
## Footnote
FCA, CONC -- 3.5.10; \*FCA, CONC -- 3.5.11 and 3.5.12.
89
What Pre-Contract Information must be Given to Customers?
**Key commercial information**, e.g. features and cost, **and legal aspects**, e.g. rights and obligations.
## Footnote
Consumer Credit (Disclosure of Information) Regulations 2010 -- Reg 3(2), Reg 8, and Sch. 1.
This information must be in the form of the Standard European Consumer Credit Information Sheet (SECCI), and any other relevant information, e.g. marketing material, must be provided separately.
90
When must Pre-Contract Information be Delivered to the Customer?
In good time before the agreement.
91
In addition to the Disclosures mandated by the Consumer Credit Regulations 2010, what does CONC mandate?
* **Adequate explanation** of the product's various elements sufficient to allow the Customer to determine its suitability for its needs.
* Notice that where pre-contract information has been handed in-person, the **Customer is able to take it away and consider** before agreeing.
* **Opportunity for the Customer to ask questions** and have them answered satisfactorily.
* **Advice on the further information** the Customer can seek.
FCA, CONC -- 4.2.5-4.2.7 and 4.2.13. Mirrored by FCA, MCOB -- 4.4A, 5A.1.2, and 5A.4.1.
Does not apply to credit agreements that are either secured on land, exceed £60,260.00, or allow overdrawing of a current account.
92
Under Principle 9 of the FCA's Principles for Business, what must the Bank do when giving Advice to its Customers?
Take **reasonable care to ensure that its advice is suitable**, all things considered, for any Customer who is entitled to rely upon it.
## Footnote
Mirrored by FCA, MCOB -- 4.7A.2.
CONC 4.8.2 and 4.8.4 are also relevant in this context, prohibiting the unfair encouragement, incentivization, or inducement of Customers using high-pressure sales tacitcs or for higher-than-requested amounts.
93
What constitutes Suitable Advice?
Advice that is **appropriate** to the **Customer's** **needs** and **circumstances**.
## Footnote
FCA, MCOB -- 4.7A.5(1)-(3).
Relevant factors may be found in FCA, MCOB -- 4.7A.6.
94
What is the Penalty for Failing to Comply with the Pre-Contract Requirements?
The **debt may be unenforcable** and **regulatory intervention may be warranted**.
## Footnote
CCA 1974 -- §55; FCA, CONC -- 4.2.3.
95
Is a Creditworthiness Assessment necessary?
**Yes**.
## Footnote
FCA, CONC -- 5.2A. Mirrored by FCA, MCOB -- 11.5, 11.6.
96
What are the Implications of Non-Advised Products for Banks?
Such products **must not be used to target vulnerable Customers**.
## Footnote
Vulnerability may be by dint of indebtedness, poor credit rating, financial illiteracy, age, health, or any other condition which may impact suitability.
97
Is the Creditor Liable for any Misrepresentations or Breaches of Contract by the Supplier?
**Yes**, so long as the **transaction falls under §12(b)-(c)**. The **liability is joint and several**.
## Footnote
CCA 1974 -- §75.
For applicable price range, see §75(3)(b). For exemptions, see §75(3)(b).
98
For §75 to Obtain, must the Creditor and Supplier have had a Direct Contractual Relationship?
**No**. An **indirect relationship**, for example through membership in a credit card scheme, **may be sufficient**.
## Footnote
*OFT v Lloyds TSB Bank* [2006] EWCA Civ 268.
99
Does §75 Obtain even if the Debtor committed a Breach of Contract, e.g. exceeding credit, in executing the transaction?
**Yes**.
## Footnote
CCA 1974 -- §75(4).
§75 also applies to foreign transactions.
100
What are the Differences between §75 and §75A?
§75A **only applies**:
* To **breach of contract claims**;
* When the agreement was **exclusively for funding the purchase of a good or service**.
* If the **cash value** of the good or service **exceeds £30,000**.
* If the **Debtor is unable to obtain satisfaction from the Supplier**.\*
§75A **does not apply** to:
* Facilities in **excess of £60,260**.
* Facilities created **wholly** or **predominantly** for **business purposes**.
\*CCA 1974 -- §75A(2).
101
What Updates did the CCA 2006 make?
* **Removal of £25,000 limit** on all consumer credit, **except for business-related credit**.
* **Deregulation of transactions with natural high-net worth Customers,** i.e. £100,000 salary or £250,000 net assets.
* New definition of '**Individual**': "**sole trader**, **a small partnership** (3 partners or less), or **an unincorporated association**."
* Retroactive introduction of the concept of unfair relationships, which applies to all consumer lending transactions.
* Retroactive introduction of **Unfair Relationships**, a concept which **applies to _all_ consumer**, i.e. non-corporate, **credit agreements**.
102
On what Grounds may a Relationship between a Debtor and Creditor be deemed Unfair?
On the grounds that an inequity arises from:
* **Any relevant terms or conditions**;
* the **way in which the Creditor has exercised its rights**; or
* **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).
CCA 2006 -- §140A.
103
What must the Court primarily consider in its Determination of §140A?
"**All matters it thinks relevant**, including matters relating to the Creditor and matters relating to the Debtor."
## Footnote
CCA 2006 -- §14A(2).
104
For Claims under §140A, with whom does the Burden of Proof lie?
It is for the Creditor to establish that the relationship is or was fair,\* so long as the Debtor has reasonable grounds for alledging unfairness.\*\*
## Footnote
\*CCA 2006 -- §140B(9); \*\**Carey v HSBC Bank* [2009] EWHC 3417
105
What are the Court's Powers pursuant to the Finding of an Unfair Relationship?
Under §140B, it may:
* **Require the Creditor**, or related party, **to repay any sum paid by the Debtor or by a surety** by virtue of the agreement or any related agreement;
* **Require the Creditor**, or related party, **to do or not to do** (**or to cease doing**) **anything so specified** in connection with the agreement or any related agreement;
* **Reduce or discharge any sum payable by the Debtor or by a surety** by virtue of the agreement or any related agreement;
* **Direct the return to a surety of any property provided** by him for the purposes of a security;
* Otherwise **set aside any duty imposed on the Debtor or on a surety** by virtue of the agreement or any related agreement; and/or
* **Alter the terms of the agreement or of any related agreement**.
106
Can an Assessment of an Unfair Relationship be Reopened?
**Yes**.
## Footnote
CCA 2006 -- §140A(4).
107
What is a Mortgage?
A **loan** contract wherein the **debt provided** by the Lender is **secured by way of mortgage over the Borrower's land**, which at least **40%** of must be used as a **dwelling**.
## Footnote
FSMA, RAO -- Art. 61.
Unregulated mortgage contracts include investment property loans, bridging loans, and buy-to-let loans. For more, see Art. 61A.
108
With respect to the Provision of Advice, in addition to Principle 9 of the FCA's Principles for Business, what does the Mortgage Conduct of Business Handbook (MCOB) stipulate?
A mortgage provider **must act honestly**, **fairly** and **professionally** in accordance with the **best interest of its Customer**. The information and advice provided must be given in **durable medium**.
## Footnote
FCA, MCOB -- 2.5A.
This mirrors COBS 2.1.1 and the Client's Best Interests Rule therein. A 'durable medium' is any instrument which enables the Customer to store information addressed personally to him in a way accessible for future reference.
109
Are Mortgage Brokers Regulated in the same fashion as Mortgage Lenders, even though they are mere Intermediaries?
**Yes**.
110
What, other than Regulated Mortgage Contracts, does MCOB's regulations on Financial Promotions and Communiations extend to?
**Home finance transactions**, which include home purchase plans, home reversion plans, or regulated sale-and-rent-back agreements.
## Footnote
FCA Handbook Glossary.
111
What are the Rules on Cold Calling Customers regarding a Mortgage?
They are **prohibited** unless a **pre-existing relationship** between the Lender and Customer **exists**, such that the **latter envisages receiving such financial promotions**.
## Footnote
FCA, MCOB -- 3A.3.5R.
112
If a Cold Call is not Prohibited, what are the Rules of Engagement?
The **Caller must**:
* **Identify themselves** and the **firm they represent**;
* **Make the purpose** of call **clear** from the **outset**;
* **Confirm** that the **Recipient wishes them to proceed**, and terminate if the answer is 'no' (a follow-up may be requested);
* **Recognize** and **respect** the **Recipient's right to end the call at any time**, as well as refuse follow-up;
* **Refrain from calling** at an **unsocial hour or** on an **unlisted phone number**, unless previously agreed.
FCA, MCOB -- 3A.4.1R.
113
Does the Borrower have the right to know the Commission paid to a Mortgage Broker by one, or more, Lenders?
**Yes**.
## Footnote
FCA, MCOB -- 4A.1.5.
114
If a Mortgagee wishes to Increase its Borrowing, what must the Broker do first?
**Inform the Customer** that it may:
* **Request a further advance** from the Lender, unless it knows it will refuse;
* **Enter into a second charge regulated mortgage contract,** where the firm would offer services in relation to a new first charge regulated mortgage contract;
* **Enter into a new first charge regulated mortgage contract**, where the firm would offer services in relation to a second charge regulated mortgage contract; or
* **Enter into an unsecured credit agreement**.
FCA, MCOB -- 4.4A8A.
115
When will a Lender or Broker be taken to have provided Advice to a Mortgagee?
If the sale **involves spoken or other interactive dialogue** between it and the Mortgagee.
## Footnote
FCA, MCOB -- 4.2.1G(2).
116
Will a Broker or Lender be taken to have provided Advice in an Execution-Only Sale?
If there was **no interactive communication** between it and the Mortgage, and the **latter was warned about the implications of proceeding without advice**, or has **rejected** any advice, then **no**.
## Footnote
Execution-only sales can never be provided to certain vulnerable customers, e.g. for customers for equity release transactions, debt consolidation, and customers who are exercising a statutory 'right to buy’, all of whom are given advice in every case.
117
What are the Characteristics of an Execution-Only Sale?
The **Customer must**, **unprompted**, **specify all the major elements of the contract**, including the:
* **Lender**;
* **Amount**;
* **Rate of interest**, and whether it is fixed or variable;
* **Maturity**; and
* **Repayment obligations**, i.e. interest-only or otherwise.
FCA, MCOB -- 4.8A.14.
118
Is the Broker or Lender subject to Official Record-Keeping Requirements?
**Yes**.
## Footnote
FCA, MCOB -- 4.7A.25.
119
Before making a Mortgage Application, what must the Customer be provided with?
**An illustration**, which concisely encapsulates the nature and main elements of the transaction.
## Footnote
FCA, MCOB -- Annex 1, 6.4.4, 6A.3.9.
120
Once a Mortgage Offer has been made, how long does the Customer have to respond?
He has a **reflection period of at least seven days**, during which time the **Broker or Lender is bound by the Offer's terms**. He may accept whenever.
## Footnote
FCA, MCOB -- 6A.3.4R.
121
Before entering into a Mortgage Agreement, what must a Broker or Lender avail regarding the Customer's finances?
That they are **sufficient to afford the contract**.
## Footnote
FCA, MCOB -- 11.6.2R.
122
What Chapter and Subsection of MCOB Regulates Remuneration, Commissions, and Inducements?
**MCOB 2.3**.
