Hudson is a property developer and needed finance for a planned project. He approached a retail broker for help, who went to another broker to secure the finance. Hudson needed to borrow $350,000 for six months and wanted to pay no more than 8.95% interest. The second broker asked Hudson to sign a mandate agreement, acknowledging that if it was able to secure finance, he would be liable to pay an administration charge of $2,000 and a brokerage fee based on a percentage of the amount of the finance secured.
Hudson said he asked his broker about the mandate agreement, and specifically queried the broker about the brokerage fee. Hudson said the broker told him that it was for him to decide whether or not the finance arranged met his requirements and, if it did not, the most he would pay was $2,000. Hudson thought this sounded reasonable, so signed the mandate agreement.
When the finance offer was presented it was for a 12-month term, with a clause allowing the lender to charge an early repayment fee if the loan was repaid early. Hudson and his broker went back to the finance broker, saying this is not what Hudson required. The finance broker checked with the lender and confirmed in writing that, although the term was for 12 months, provided Hudson gave one month’s notice of his intention to repay early, the lender would not charge the early repayment fee.
Hudson still felt uncomfortable about the deal and, after consulting his broker, he said he would not be accepting the finance offer. The finance broker replied saying that Hudson would be liable for both the $2000 administration charge and the brokerage fee of $10,000.
Hudson paid the $2,000 but did not agree to pay the $10,000 and complained to FSCL.
Hudson said he thought the $10,000 fee was unreasonable and that his broker had told him that, if he did not proceed with the finance, the most he would pay was $2,000.
The finance broker said it could not comment on what Hudson’s broker had told him, but the mandate agreement was clear. Hudson was liable to pay the $10,000.
We agreed the mandate agreement was clear. Provided the finance company secured finance as described within the mandate agreement, Hudson was liable to pay the brokerage fee. We agreed the finance offered was not straightforward, because it was for 12 months instead of 6 months. However, given the written confirmation from the lender that it would not charge an early repayment fee if the loan was repaid early, we advised Hudson that the offer fell within the description in the mandate agreement.
Hudson was disappointed with our decision, but we understand he accepted the recommendation.
Insights for consumers
Be very careful if you are entering into lending outside the protection of the Credit Contracts and Consumer Finance Act 2003. Commercial lending often attracts high brokerage fees and if you have signed a mandate agreement, like the one Hudson signed, you may be liable for a considerable fee, regardless of whether or not you proceed with the proposed lending.