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The NACFB is the only UK trade body dedicated to the commercial finance broker. We represent members from across the whole commercial finance market: from buy-to-let specialists and commercial mortgage advisers to vehicle finance brokers; from leasing and asset finance specialists to factoring brokers. All NACFB members comply with an industry recognised Code of Practice
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Hurstanger vs. Wilson – the last word?
3rd December 2007
Niche Commercial Finance
January edition
Hurstanger vs. Wilson – the last word?
I am writing this article in the hope that it will be the last word on a long, convoluted and controversial subject. The Association has debated the matter long and hard with both its membership and commercial lenders it works closely with in order to both fully understand the legal position that the ruling creates and also to gauge members’ and Patrons’ views on a controversial topic. We had asked for members’ feedback at our most recent regional workshops in Manchester and London. Also members who were unable to attend any of our events and held strong views on the subject were invited to write to Head office to make their feelings heard.
And the conclusion is? That the Association recommends that its membership practice full disclosure of any commission paid to them by lenders. Note the word here is recommends, not insists. If members who do not currently disclose wish to continue in non-disclosure they are welcome to do so. The Association is not going to force anyone to adopt a business model that they are adverse to. However, I should point out at this point that the legal precedent is pretty clear, and any member who chooses non-disclosure would be well advised to seek expert legal advice as they put not just their commission, but also in extreme cases, the whole loan at risk.
But I am starting at the end. Some members have angrily asked why the Association doesn’t lobby and do something about it to defend the membership. The problem for members who do not wish to disclose their commission is that the legal case is actually very clear. The problem is that this is a legislatory issue – not a regulatory one. This is not a Government or FSA directive – it is a legal ruling and it is simply not possible to lobby the law courts. However, that’s not to say that members who don’t agree with the stance the Association is taking don’t have a valid point. The problem is one of not playing on a level playing field. If NACFB brokers are made to disclose, it puts them at an active disadvantage with other brokers in the market who are not members of the Association. This is another reason why the Board thought it appropriate to make it a recommendation – not a compulsory requirement.
As a member organisation we always try to work in the best interests of all our members – the problem is there is often huge disagreement on what the ‘best’ might be. The old adage: ‘You can’t please all of the people all of the time’ rings especially true. For as many members as we have arguing that the Association should be lobbying for the ruling to be overturned (which isn’t possible in any case – see above), we have many more who feel that disclosure is very obviously the right thing to do; the phrase I’ve hear a hundred times is that it’s a ‘no-brainer’.
One member, Richard Ruzyllo, of Broker (UK) Net Ltd, felt moved to write this on his blog: “Do we tell our clients how much we earn from the business that we write? The conversations that I am hearing remind me of the dark days before the…Financial Services Authority finally took the industry by the hand. The simple answer is “yes” - we (the brokers) should tell our clients how much we are earning. I don’t believe that full commission disclosure will harm the industry. Plus, if we do not regulate ourselves, then someone else will. It is only a matter of time before the Government trains its beady eye on us. Do we want to hear: ”Secretary of State - release the hounds!” Let’s do what we failed to do twenty years ago. Let’s show that we can regulate ourselves.”
Apart from the members views we have also taken into consideration the views of the lenders, NACFB Patrons. In the course of our discussions it has become increasingly apparent that many lenders are becoming keener that brokers disclose their commissions because of the possible implications of the Hurstanger case: in extreme cases, the whole loan could be overturned if commission is concealed. Ultimately, we believe it will probably be a push by the lenders which will mean brokers will have to disclose and so the market should regulate itself.
The Association was set up in 1992 to stamp out unacceptable business practices in the commercial finance broker industry. The ultimate aim was to stave off centralised regulation by proving that, by and large, the commercial finance sector could look after itself.
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