Lender Not Obliged to Advise Borrower About Onerous Term (High Court)

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In the case of Finch and another v Lloyds TSB Bank Plc and others [2016] EWHC 1236 (QB) (08 June 2016), the High Court considered whether a lender fell under a contractual duty to advise the claimants on the onerous terms in the loan agreement.

In general, a bank is not under a legal obligation to provide advice but if it does then it must do so using reasonable care and skill. The claimants argued that the lender had failed to inform them that if they were to repay the loan early then they would be subject to repaying any resulting break costs incurred by the lender.

The claimants contended that a duty to advise arose because of the close relationship between a borrower and a lender and as a result of the lender describing themselves as a ‘trusted advisor’.

The High Court held that the bank was not under any duty to give advice, nor did it have any contractual duty to the borrower. HHJ Pelling QC commented that the proposition that the lender was effectively under a duty to give disinterested advice voluntarily in relation to the product it was offering, even though that advice was or might be contrary to its commercial best interests went beyond the type of tortious duty considered in existing cases. The circumstances in which such a duty could arise “would have to be exceptional and markedly different from the conventional relationship of banker and customer”.

The High Court also found that the phrase ‘trusted advisor’ to describe the lender was simply a phrase used by it and its employees for marketing purposes to differentiate it from its competitors.

Therefore, even with an enthusiastic marketing strategy, emphasizing the lenders willingness to work with the borrower to find the best solution for its borrowing needs it will be hard for the borrower to establish that the lender has a duty to advise it about the terms of the loan documentation.

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