Tribunal rules on Validation Order on credit agreements brokered by unauthorised firm

The Tribunal has handed down its decision in the case of Plexedes Chickombe and 44 others v the FCA and Clydesdale Financial Services Limited trading as Barclays Partner Finance (Clydesdale) as interested party. The case concerned consumer credit agreements that were entered into through an unauthorised broker. Clydesdale had discovered that 1,444 regulated credit agreements to finance the acquisition of timeshare accommodation had been brokered by an unauthorised broker in breach of FSMA. Because the agreements were made in consequences of something said or done by a third party in contravention of the FSMA general prohibition, the agreements were, under FSMA, unenforceable against the borrowers, who also had the right to recover money or property transferred to Clydesdale under the agreements.  Clydesdale asked FCA to make a “validation order” on the basis it was just and equitable for the agreements to be enforced and money paid to be retained.   FCA decided to validate the agreements for a number of reasons, including that there had been no customer detriment. Some borrowers, however, alleged in exercising their right to appeal the decision to the Tribunal, that there was detriment and raised the question as to whether the validation decision was reasonably open to FCA.  Among the borrowers’ contentions were that they were pressurised into signing the agreements and were not given the time to read them, nor were the terms of the agreements explained to them.  FCA was unaware of these allegations when it made its decision.  The Tribunal decided that consumer detriment is a relevant factor to be taken into account when FCA decides whether to issue a validation order, and that FCA had acted unlawfully in fettering its discretion by the narrow manner in which it took into account evidence of consumer detriment. The Tribunal remitted the case to FCA for it to reconsider its decision, this time taking consumer detriment into account.