CONRED 5.3 Third step: assessing scheme cases under unfair relationship provisions

1. (1) there is or was an unfair relationship under the unfair relationship provisions arising out of a failure to provide adequate disclosure of one or more of the relevant arrangements (stage 1); and
2. (2) the consumer suffered loss or damage as a result (stage 2).

1. (1) any more relevant arrangements are present in respect of the scheme case; and  

2. (2) it has the necessary records and information to determine whether there was an unfair relationship that caused loss or damage to the consumer in accordance with the rules in this section (i.e. the third step). 

    

1. (1) To identify whether any of the relevant arrangements are present in accordance with CONRED 5.3.2R(1), the lender must apply the rules and guidance in CONRED 5.2.19R to CONRED 5.2.24R in so far as those rules relate to identifying whether a relevant arrangement is present in a scheme case.
2. (2) To identify whether the lender has the necessary records and information to make the determination required under the third step in accordance with CONRED 5.3.2R(2) the lender must consider in particular the types of records set out in CONRED 5.3.12R (approach to evidence when assessing the adequacy of disclosure). 

If a credit broker receives a request for information from a lender under CONRED 5.3.4R or CONRED 5.3.5R, it must conduct a thorough search of its systems and respond to that request within 1 month by either:

1. (1) providing the requested information in the format requested or, if that is not reasonably practicable, a reasonable format; or
2. (2) confirming that it does not hold the requested information.

1. (1) one or more of the relevant arrangements are present; and

2. (2) there was a failure to provide adequate disclosure to the consumer of any of those arrangements that were present.

    

1. (1) the rules on assessing adequate disclosure in CONRED 5.3.10R and CONRED 5.3.12R; and

2. (2) section 56 of the CCA (see CONRED 5.3.13G).

    

1. (1) There will not have been adequate disclosure of a relevant arrangement unless the following information (the ‘disclosure information’) was clearly and prominently provided to the consumer before the consumer entered into the motor finance agreement:
   1. (a) in relation to a discretionary commission arrangement – the fact that commission was payable to the credit broker in respect of the consumer’s agreement and sufficient information about the discretionary commission arrangement for the consumer to understand that the credit broker was permitted to select the interest rate provided for under the motor finance agreement in a way that affected the amount of commission that would be received by the credit broker;
   2. (b) in relation to a high commission arrangement – the fact and amount of the commission payable to the credit broker in respect of the consumer’s agreement, either by the disclosure of the amount of commission in monetary terms or by the disclosure of the method by which the commission amount would be calculated such that the consumer was able to understand its size;
   3. (c) in relation to a tied arrangement – the fact of the tied arrangement and sufficient information about the arrangement for the consumer to understand that the credit broker would introduce consumers exclusively to the lender or give the lender the option to provide an offer of credit to the consumer before the credit broker approached any other lender (as relevant).
2. (2) The disclosure information will not have been clearly and prominently provided unless it was presented, in relation to the other information provided at the same time, in such a way that it (subject to (3) and (4)) was likely to have drawn the attention of the average customer to whom it was directed.
3. (3) The lender may base its assessment of whether there was adequate disclosure for the purposes of (1) on whether the disclosure was likely to have been adequate for the average consumer to whom the relevant communication was directed unless there is evidence in the records relating to the scheme case that:
   1. (a) the consumer had characteristics which would have impaired the consumer’s ability to meaningfully understand the information; and
   2. (b) those characteristics would at the time have been apparent to the person making the communication.
4. (4) Where the circumstances in (3)(a) and (b) apply, the lender should further consider whether any additional information, further explanation or a different communication channel would have been required to meet the information needs of that consumer for the disclosure to have been adequate.

1. (1) Examples that would tend to indicate that the disclosure information in CONRED 5.3.10R(1) is likely to have been presented clearly and prominently for the purposes of CONRED 5.3.10R(2) include the following (subject to CONRED 5.3.10R(3) to (4)):
   1. (a) there is evidence that an oral communication was used to draw the consumer’s attention to the information in written form;
   2. (b) that information was presented as a key term or item of information at the top of a key document, or presented as such in a separate short summary document;
   3. (c) that information was specifically drawn to the consumer’s attention by bold text or similar visual means; or
   4. (d) the consumer was asked to specifically acknowledge that they had been given that information (for example, by signing a declaration to that effect).
2. (2) Examples that would tend to indicate that the disclosure information in CONRED 5.3.10R(1) is unlikely to have been presented clearly and prominently for the purposes of CONRED 5.3.10R(2) include where its importance was obscured or diminished by:
   1. (a) being surrounded by a significant volume of other terms or information, with no particular attention drawn to it; or
   2. (b) the use of small font sizes.

1. (1) This rule sets out the lender’s approach to evidence when assessing whether there was adequate disclosure of the disclosure information.
2. (2) The lender must presume that there was no adequate disclosure unless one of the conditions in (3) or (4) is met.
3. (3) The first condition referred to in (2) is that:
   1. (a) one (or more) of the primary records of the type listed in CONRED 5 Annex 1.1G(3) contains the disclosure information; and
   2. (b) either:
      1. (i) there is evidence that the disclosure information contained in that record (or records) was provided to the consumer prior to the consumer entering into the motor finance agreement; or
      2. (ii) the lender has reasonable grounds to believe that the consumer was made aware of the disclosure information contained in that record (or records) prior to that consumer entering into the motor finance agreement.
4. (4) The second condition referred to in (2) is that there are relevant secondary records which demonstrate that the disclosure information was more likely than not provided to the consumer before the consumer entered into the motor finance agreement.
5. (5) For the purposes of this rule, ‘relevant secondary record’ means:
   1. (a) records (of the type described in CONRED 5 Annex 1.1G(4) (such as template disclosure materials or other records)) which clearly set out the policy of the lender or the credit broker to include information that would constitute adequate disclosure in the information provided to consumers at the relevant time; or
   2. (b) contemporaneous records of the type described in CONRED 5 Annex 1.1G(3) relating to other consumers who were in a sufficiently similar position as the consumer in the scheme case, and which include information that demonstrates the standard disclosure practice of the lender or the credit broker at the relevant time.
6. (6) A lender may only rely on a relevant secondary record if it can demonstrate that it has taken reasonable steps to verify that the record relates to a period of time that is contemporaneous with the time the consumer entered into their motor finance agreement.

1. (1) A presumption of an unfair relationship arising out of a failure to provide adequate disclosure of a relevant arrangement is rebuttable by the lender where it can be demonstrated on the basis of evidence that it is more likely than not that the particular consumer could reasonably be expected to have known about or foreseen the disclosure information about the relevant arrangement because of:
   1. (a) their level of specific knowledge or experience (for example, from working in a relevant role within a vehicle dealership or the motor finance industry); or
   2. (b) prior transactions with the lender or credit broker involving adequate disclosure of the relevant arrangements.
2. (2) A presumption of an unfair relationship arising out of a failure to provide adequate disclosure of a tied arrangement is rebuttable by the lender where it can be demonstrated on the basis of evidence that it is more likely than not that the constraints imposed by the tied arrangement in the scheme case did not impact on the credit broker’s decision to introduce the consumer to the lender because, at the relevant time:
   1. (a) the lender had expressly, or by implication through the course of dealing between the parties, agreed to forgo any reliance on the tied arrangement; or   
   2. (b) the broker had a policy or practice of disregarding the tied arrangement when introducing consumers to lenders.

1. (1) evidence which demonstrates that, at the relevant time, the credit broker was introducing consumers to lenders in a way that was incompatible with a scenario in which the tied arrangement had an impact on the decision making of the credit broker (see CONRED 5.3.17R); and
2. (2) verification of the reliance on that evidence in accordance with CONRED 5.3.18R.

1. (1) In addition to the evidence of the type described in CONRED 5.3.17R, the lender must obtain a report from:
   1. (a) the individual who has responsibility for the management of the internal audit function of the firm; or
   2. (b) an independent auditor.
2. (2) The report must include:
   1. (a) an explanation of the evidence being relied upon by the firm to demonstrate the rebuttal;
   2. (b) a statement of the role and responsibilities of the person providing the report; and
   3. (c) an attestation from that person confirming that they have:
      1. (i) reviewed and assessed the evidence relied on by the firm to demonstrate the rebuttal; and
      2. (ii) concluded that the evidence demonstrates that the conditions for relying on the rebuttal are met.
3. (3) A report produced pursuant to this rule may apply to a group of scheme cases provided the requirements of this rule are satisfied in respect of each scheme case to which the report relates.

1. (1) If the lender determines that there was an unfair relationship in accordance with CONRED 5.3.19R, the lender must proceed to CONRED 5.3.21R (Stage 2: loss or damage assessment – presumption of loss or damage).
2. (2) If the lender determines there was not an unfair relationship because there was adequate disclosure or the presumption of an unfair relationship was rebutted, the lender must:
   1. (a) inform the consumer of that determination and the reasons for it in a provisional redress decision that:
      1. (i) contains the information set out in CONRED 5 Annex 2; and
      2. (ii) is sent in a durable medium; and
   2. (b) provide the consumer with 1 month to respond.

1. (1) The presumption of loss or damage in CONRED 5.3.21R is rebuttable by the lender if it can demonstrate on the basis of evidence that it is more likely than not that the consumer would not, in relation to the same transaction, have been able to obtain a lower annual percentage rate from another lender with which the credit broker had a referral arrangement, at the relevant time.   
2. (2) The rebuttal in this rule only applies where, at the relevant time:     
   1. (a) the credit broker had referral arrangements with one or more lender, other than the lender in the scheme case (for example, where the credit broker had access to a ‘panel’ of other lenders as an alternative to the right of first refusal arrangement it had with the lender); and
   2. (b) those lenders offered motor finance agreements that would have been available to, and suitable for the needs of, the consumer in the scheme case (considering the consumer’s credit profile and the characteristics of the credit product sought).
3. (3) Reliance on the rebuttal in this rule must be supported by evidence which demonstrates:
   1. (a) the alternative annual percentage rates that would, at the relevant time, have been available to the consumer from each lender with which the credit broker had referral arrangements; or
   2. (b) that the credit broker’s internal processes at the relevant time involved carrying out checks which ensured that the consumer could not have received a lower annual percentage rate from any other lender with which the credit broker had a referral arrangement.
4. (4) The rebuttal in this rule cannot be relied upon in scheme cases where the lender has determined that there was an unfair relationship arising out of a discretionary commission arrangement.
5. (5) For the purposes of this rule, and CONRED 5.3.23R, ‘referral arrangement’ means an arrangement between a lender and a credit broker relating to the introduction of consumers wishing to enter into motor finance agreements with that lender.

1. (1) The following evidence is likely to be required to demonstrate CONRED 5.3.22R(3)(a):
   1. (a) contemporaneous broker platform screenshots or other records showing the application of the consumer in the scheme case and the range of rates that were available to that consumer;
   2. (b) contemporaneous communications (for example, emails or system notes) confirming the annual percentage rates considered by the credit broker in respect of the consumer in the scheme case; or
   3. (c) a combination of the following:
      1. (i) contemporaneous records that:
         1. (A) show the annual percentage rates available from the lenders with which the credit broker had arrangements at the relevant time; and
         2. (B) provide sufficient information, taking into account different credit profiles, credit amounts and product types, to allow the available rates to be matched to the consumer in the scheme case; and
      2. (ii) sufficient transaction data:
         1. (A) to demonstrate the annual percentage rates that were provided to consumers in a sufficiently similar position to the consumer in the scheme case (ie, consumers with a similar credit profile, credit amount and product type) by those lenders; and
         2. (B) from which reasonable assumptions about the rates available to the consumer in the scheme case can be made.
2. (2) The following evidence is likely to be required to demonstrate CONRED 5.3.22R(3)(b):
   1. (a) contemporaneous records of the credit broker’s internal systems, controls, processes, policies, procedures or other documents which set out the credit broker’s approach to the introduction of consumers to lenders at the relevant time; and
   2. (b) a statement from an individual of appropriate seniority in the credit broker attesting that:
      1. (i) the records referred to in (a) accurately reflect the credit broker’s internal processes the relevant time; and
      2. (ii) those processes ensured that the consumer could not have obtained a lower annual percentage rate from another lender with which the credit broker had referral arrangements at the relevant time.

1. (1) If the lender determines that the unfair relationship caused loss or damage to the consumer, the lender must proceed to the fourth step in CONRED 5.4.
2. (2) If the lender determines that the unfair relationship did not cause loss or damage to the consumer (because the presumption was rebutted in accordance with CONRED 5.3.22R), the lender must:
   1. (a) inform the consumer of that determination and the reasons for it in a provisional redress decision sent in a durable medium that contains the information set out in CONRED 5 Annex 2; and
   2. (b) provide the consumer with 1 month to respond.

1. (1) This rule applies where a lender has sent a provisional redress decision under:
   1. (a) CONRED 5.3.20R(2); or
   2. (b) CONRED 5.3.26R(2).
2. (2) If the consumer responds to the provisional redress decision within 1 month stating that they do not wish to have their case considered under this scheme, the lender must, within a 7-day period beginning on the day the response is received, send the consumer a communication to:
   1. (a) acknowledge the response; and
   2. (b) explain that the complaint will not be dealt with any further.
3. (3) If the consumer responds to the provisional redress decision within 1 month stating that they accept the decision, the lender must, within a 7-day period beginning on the day the response is received, send the consumer a communication acknowledging the acceptance.
4. (4) If a consumer responds to the provisional redress decisions within 1 month objecting to the decision, the lender must:
   1. (a) send an acknowledgment containing the information set out in CONRED 5 Annex 10.1R within 7 days, requiring the consumer to provide further details of the objection, including any evidence supporting the objection, within 1 month of the date of the acknowledgement;
   2. (b) decide whether it should proceed to stage 2 of the third step in respect of cases relating to (1)(a) and the fourth step in respect of cases relating to (1)(b) on the basis of the objection, including any representations and any supporting evidence from the consumer; and
   3. (c) undertake one of the actions set out in (5) within 2 months of:
      1. (i) the day it receives the further details of the objection; or
      2. (ii) where the lender receives no further details within 1 month of the date of the acknowledgement in accordance with (a), the date of the expiry of that 1 month period.
5. (5) The actions in (4)(c) are:
   1. (a) send a redress determination confirming the provisional redress decision and containing the information in CONRED 5 Annex 3; or
   2. (b) complete the remaining steps under this chapter necessary to provide the consumer with their next provisional redress decision or redress determination.
6. (6) Where the lender accepts the consumer’s objection, provided in accordance with (4), it must proceed to the next stage or step.
7. (7) Where the consumer does not respond to the provisional redress decision referred to in (1) within 1 month, the lender must send a redress determination confirming the provisional redress decision in the form set out in CONRED 5 Annex 3 within 1 month of the expiry of that period.
8. (8) Any communication sent by a lender under this rule must be sent in a durable medium.