Shawbrook Bank Limited · DRN-6247795

The complaint Mr and Mrs L’s complaint is, in essence, that Shawbrook Bank Limited (the ‘Lender’) acted unfairly and unreasonably by (1) being party to an unfair credit relationship with them under Section 140A of the Consumer Credit Act 1974 (as amended) (the ‘CCA’) and (2) deciding against paying claims under Section 75 of the CCA. What happened Mr and Mrs L were members of a timeshare provider (the ‘Supplier’) – having purchased several products from it over time. But the product at the centre of this complaint is their membership of a timeshare that I’ll call the ‘Fractional Club’ – which they bought on 25 June 2015 (the ‘Time of Sale’). They entered into an agreement with the Supplier to buy 16,000 fractional points at a cost of £13,160 after trading in 12,000 of their European Collection Points (the ‘Purchase Agreement’). Fractional Club membership was asset backed – which meant it gave Mr and Mrs L more than just holiday rights. It also included a share in the net sale proceeds of a property named on the Purchase Agreement (the ‘Allocated Property’) after their membership term ends. Mr and Mrs L paid for their Fractional Club membership by taking finance of £15,160 from the Lender (the ‘Credit Agreement’). The additional amount was used to refinance/consolidate an existing loan from an earlier timeshare purchase. Mr and Mrs L – using a professional representative (the ‘PR’) – wrote to the Lender on 19 December 2023 (the ‘Letter of Complaint’) to raise several different concerns. As both sides are familiar with the concerns raised, it isn’t necessary to repeat them in detail here beyond the summary above. The Lender dealt with Mr and Mrs L’s concerns as a complaint and issued its final response letter on 8 April 2024, rejecting it on every ground. The complaint was then referred to the Financial Ombudsman Service. It was assessed by an Investigator who, having considered the information on file, rejected the complaint on its merits. Mr and Mrs L disagreed with the Investigator’s assessment and asked for an Ombudsman’s decision – which is why it was passed to me. I issued a provisional decision explaining that I was not planning to uphold the complaint. The Lender acknowledged my provisional decision and said it had nothing further to add. The PR disagreed with my provisional findings and provided some comments and documents it wanted me to consider when making my final decision.

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What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Following the responses from both parties, I’ve considered the case afresh. Having done so, I’ve reached the same decision as that which I outlined in my provisional findings – and for broadly the same reasons. A copy of my provisional findings is below. As such, I do not uphold this complaint. START OF COPY OF PROVISIONAL FINDINGS Section 75 of the CCA: the Supplier’s misrepresentations at the Time of Sale As a general rule, creditors can reasonably reject Section 75 claims that they are first informed about after the claim has become time-barred under the Limitation Act 1980 (the ‘LA’) as it wouldn’t be fair to expect creditors to look into such claims so long after the liability arose and after a limitation defence would be available in court. So, it is relevant to consider whether Mr and Mrs L’s Section 75 claim for misrepresentation was time-barred under the LA before he put it to the Lender. As I mentioned above, a claim under Section 75 is a “like” claim against the creditor. It essentially mirrors the claim Mr and Mrs L could make against the Supplier. A claim for misrepresentation against the Supplier would ordinarily be made under Section 2(1) of the Misrepresentation Act 1967. And the limitation period to make such a claim expires six years from the date on which the cause of action accrued (see Section 2 of the LA). But a claim, like the one in question here, under Section 75 is also ‘an action to recover any sum by virtue of any enactment’ under Section 9 of the LA. And the limitation period under that provision is also six years from the date on which the cause of action accrued. The date on which the cause of action accrued was the Time of Sale. I say this because Mr and Mrs L entered into the purchase of his timeshare at that time based on the alleged misrepresentations of the Supplier – which they say were relied upon. And as the loan from the Lender was used to help finance the purchase, it was when they entered into the Credit Agreement that they suffered a loss. Mr and Mrs L first notified the Lender of his Section 75 claim on 19 December 2023. And as more than six years had passed between the Time of Sale and when that claim was first put to the Lender, I don’t think it was unfair or unreasonable of the Lender to reject Mr and Mrs L’s concerns about the Supplier’s alleged misrepresentations. Section 75 of the CCA: the Supplier’s Breach of Contract I have already summarised how Section 75 of the CCA works and why it gives consumers a right of recourse against a lender. So, it is not necessary to repeat that here other than to say that, if I find that the Supplier is liable for having breached the Purchase Agreement, the Lender is also liable.

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Mr and Mrs L say that they could not holiday where and when they wanted to. On my reading of the complaint, this suggests that the Supplier was not living up to its end of the bargain, meaning it could be viewed as potentially breaching the Purchase Agreement. It is not clear precisely when this was alleged to have happened, but if it happened within six years of the time the complaint was first made, such a claim would not have been made too late under the LA. Yet, like any holiday accommodation, availability was not unlimited – given the higher demand at peak times, like school holidays, for instance. Some of the sales paperwork likely to have been signed by Mr and Mrs L states that the availability of holidays was/is subject to demand. It also looks like they made use of their fractional points to holiday on several occasions. I accept that they may not have been able to take certain holidays. But I have not seen enough to persuade me that the Supplier had breached the terms of the Purchase Agreement. So, from the evidence I have seen, I do not think the Lender is liable to pay Mr and Mrs L any compensation for a breach of contract by the Supplier. And with that being the case, I do not think the Lender acted unfairly or unreasonably in relation to this aspect of the complaint either. Section 140A of the CCA: did the Lender participate in an unfair credit relationship? I’ve already explained why I’m not persuaded that Fractional Club membership was actionably misrepresented by the Supplier at the Time of Sale. But there are other aspects of the sales process that, being the subject of dissatisfaction, I must explore with Section 140A in mind if I’m to consider this complaint in full – which is what I’ve done next. Having considered the entirety of the credit relationship between Mr and Mrs L and the Lender along with all of the circumstances of the complaint, I don’t think the credit relationship between them was likely to have been rendered unfair for the purposes of Section 140A. When coming to that conclusion, and in carrying out my analysis, I have looked at: 1. The standard of the Supplier’s commercial conduct – which includes its sales and marketing practices at the Time of Sale along with any relevant training material. 2. The provision of information by the Supplier at the Time of Sale, including the contractual documentation and disclaimers made by the Supplier. 3. The commission arrangements between the Lender and the Supplier at the Time of Sale and the disclosure of those arrangements. 4. Evidence provided by both parties on what was likely to have been said and/or done at the Time of Sale. 5. The inherent probabilities of the sale given its circumstances. 6. Any existing unfairness from a related credit agreement.

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I have then considered the impact of these on the fairness of the credit relationship between Mr and Mrs L and the Lender. The Supplier’s sales & marketing practices at the Time of Sale Mr and Mrs L’s complaint about the Lender being party to an unfair credit relationship was and is made for several reasons. They include allegations that: 1. The right checks weren’t carried out before the Lender lent to Mr and Mrs L. However, none of strikes me as a reason why this complaint should succeed. I haven’t seen anything to persuade me that the right checks weren’t carried out by the Lender given this complaint’s circumstances. But even if I were to find that the Lender failed to do everything it should have when it agreed to lend (and I make no such finding), I would have to be satisfied that the money lent to Mr and Mrs L was actually unaffordable before also concluding that they lost out as a result and then consider whether the credit relationship with the Lender was unfair to them for this reason. But from the information provided, I am not satisfied that the lending was unaffordable for Mr and Mrs L. Overall, therefore, I don’t think that Mr and Mrs L’s credit relationship with the Lender was rendered unfair to them under Section 140A for any of the reasons above. But there is another reason why the PR now says the credit relationship with the Lender was unfair to them. And that’s the suggestion that Fractional Club membership was marketed and sold to them as an investment in breach of the prohibition against selling timeshares in that way. The Supplier’s alleged breach of Regulation 14(3) of the Timeshare Regulations The Lender does not dispute, and I am satisfied, that Mr and Mrs L’s Fractional Club membership met the definition of a “timeshare contract” and was a “regulated contract” for the purposes of the Timeshare Regulations. Regulation 14(3) of the Timeshare Regulations prohibited the Supplier from marketing or selling Fractional Club membership as an investment. This is what the provision said at the Time of Sale: “A trader must not market or sell a proposed timeshare contract or long-term holiday product contract as an investment if the proposed contract would be a regulated contract.” But the PR and Mr and Mrs L say that the Supplier did exactly that at the Time of Sale – saying, in summary, that they were told by the Supplier that they would recover all the money they paid plus make a profit. The term “investment” is not defined in the Timeshare Regulations. But for the purposes of this provisional decision, and by reference to the decided authorities, an investment is a transaction in which money or other property is laid out in the expectation or hope of financial gain or profit. A share in the net sale proceeds of the Allocated Property could constitute an

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investment as it offered Mr and Mrs L the prospect of a financial return – whether or not, like all investments, that was more than what they first put into it. But it is important to note at this stage that the fact that Fractional Club membership included an investment element did not, itself, transgress the prohibition in Regulation 14(3). That provision prohibits the marketing and selling of a timeshare contract as an investment. It doesn’t prohibit the mere existence of an investment element in a timeshare contract or prohibit the marketing and selling of such a timeshare contract per se.1 In other words, the Timeshare Regulations did not ban products such as the Fractional Club. They just regulated how such products were marketed and sold. To conclude, therefore, that Fractional Club membership was marketed or sold to Mr and Mrs L as an investment in breach of Regulation 14(3), I have to be persuaded that it was more likely than not that the Supplier marketed and/or sold membership to them as an investment, i.e. told them or led them to believe that Fractional Club membership offered them the prospect of a financial gain (i.e., a profit) given the facts and circumstances of this complaint. There is competing evidence in this complaint as to whether Fractional Club membership was marketed and/or sold by the Supplier at the Time of Sale as an investment in breach of regulation 14(3) of the Timeshare Regulations. On the one hand, the Supplier made efforts to avoid specifically describing membership of the Fractional Club as an ‘investment’ or quantifying to prospective purchasers, such as Mr and Mrs L, the financial value of their share in the net sales proceeds of the Allocated Property along with the investment considerations, risks and rewards attached to them. On the other hand, I think that the Supplier’s sales process left open the possibility that the sales representative may have positioned Fractional Club membership as an investment. So, I accept that it’s equally possible that Fractional Club membership was marketed and sold to Mr and Mrs L as an investment in breach of Regulation 14(3). However, whether there was a breach of the relevant prohibition by the Supplier is not ultimately determinative of the outcome in this complaint for reasons I will come on to shortly. And with that being the case, it’s not necessary to make a formal finding on that issue for the purposes of this decision. 1 The PR has argued that Fractional Club membership amounted to an Unregulated Collective Investment Scheme, however this was considered and rejected in the judgment in R (on the application of Shawbrook Bank Ltd) v Financial Ombudsman Service Ltd and R (on the application of Clydesdale Financial Services Ltd (t/a Barclays Partner Finance)) v Financial Ombudsman Service [2023] EWHC 1069 (Admin).

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Was the credit relationship between the Lender and Mr and Mrs L rendered unfair? Having found that it was possible that the Supplier breached Regulation 14(3) of the Timeshare Regulations at the Time of Sale, I now need to consider what impact that breach had on the fairness of the credit relationship between Mr and Mrs L and the Lender under the Credit Agreement and related Purchase Agreement as the case law on Section 140A makes it clear that regulatory breaches do not automatically create unfairness for the purposes of that provision. Such breaches and their consequences (if there are any) must be considered in the round, rather than in a narrow or technical way. Indeed, it seems to me that, if I am to conclude that a breach of Regulation 14(3) led to a credit relationship between Mr and Mrs L and the Lender that was unfair to them and warranted relief as a result, it is important for me to consider whether the Supplier’s breach of Regulation 14(3) led them to enter into the Purchase Agreement and the Credit Agreement. On my reading of the evidence before me, the prospect of a financial gain from Fractional Club membership was not an important and motivating factor when Mr and Mrs L decided to go ahead with their purchase. I say this for the following reasons. The PR has provided a signed statement from Mr and Mrs L dated 18 December 2023 – over seven years after the Time of Sale. This includes the following recollections: “The sales representative was very convincing and explained the benefits of the Fractional being: 1. The Fractional can be included in our Will so that it can be passed to our children if we were not alive. The kids can get money from the future profits from the Fractional so this was an investment for the kids. 2. Our original Points Timeshare contract was for 50 years whereas the Fractional contract is for a shorted [sic] period before the property is sold. 3. The Fractional was a property investment which will be sold at a future date and we will recover all the money we have paid plus make a profit.” So, this alleges that the Supplier positioned the purchase as being an investment that could lead to a profit. However, Mr and Mrs L’s statement is quite brief. It mentions that they had been timeshare owners through the Supplier since 2004 but provides no further details on their purchase history. It says the sale took place in Lanzarote at their villa. But beyond that, the quote above is all that Mr and Mrs L have said about what happened at the Time of Sale. I think it lacks the detail that might make it more persuasive. As it is, it comes across as a list of things the Supplier might have said that would breach Regulation 14(3) of the Timeshare Regulations. What it does not do is say that Mr and Mrs L were persuaded to purchase because they hoped or expected to make a profit. Indeed, the evidence provided by the PR explicitly says that Mr and Mrs L’s motivation in contacting the PR was not to recover what they’d spent on the

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purchase, but to get out of paying future annual management fees – which, having retired, they said they could no longer afford. The statement says Mr and Mrs L had only been able to take one holiday in the previous four years (that is, since December 2020), but the Lender has said that the Supplier’s records show they had taken two holidays in that time. So, it appears that Mr and Mrs L had inaccurately recalled their usage of the timeshare in the previous four years. That does not inspire confidence that they have accurately recalled what they were told at the Time of Sale, which was over seven years before the statement was made. In addition to this, the statement is dated after the judgment in R (on the application of Shawbrook Bank Ltd) v Financial Ombudsman Service Ltd and R (on the application of Clydesdale Financial Services Ltd (t/a Barclays Partner Finance)) v Financial Ombudsman Service [2023] EWHC 1069 (Admin) (‘Shawbrook & BPF v FOS’) was handed down. The PR was aware of that judgement, and that a breach of Regulation 14(3) of the Timeshare Regulations could lead to an unfair credit relationship. The call note provided by the PR, dated 3 November 2023, says that Mr and Mrs L had been in touch with another professional representative prior to contacting the PR. Indeed, as there isn’t any other evidence on file to corroborate Mr and Mrs L’s fairly recent evidence about their motivations at the Time of Sale, there seems to me to be a very real risk that Mr and Mrs L’s recollections were coloured by the judgment in Shawbrook & BPF v FOS. And with that being the case, I’m not persuaded that I can give their written recollections the weight necessary to justify finding that the credit relationship in question was unfair for reasons relating to a breach of the relevant prohibition. That doesn’t mean Mr and Mrs L weren’t interested in a share in the Allocated Property. After all, that wouldn’t be surprising given the nature of the product at the centre of this complaint. But as Mr and Mrs L themselves don’t persuade me that their purchase was motivated by their share in the Allocated Property and the possibility of a profit, I don’t think a breach of Regulation 14(3) by the Supplier was likely to have been material to the decision they ultimately made. On balance, therefore, even if the Supplier marketed or sold Fractional Club membership as an investment in breach of Regulation 14(3) of the Timeshare Regulations, I am not persuaded that Mr and Mrs L’s decision to purchase Fractional Club membership at the Time of Sale was motivated by the prospect of a financial gain (i.e., a profit). On the contrary, I think the evidence suggests they would have pressed ahead with their purchase regardless of whether there had been a breach of Regulation 14(3). And for that reason, I do not think the credit relationship between Mr and Mrs L and the Lender was unfair to them even if the Supplier did breach Regulation 14(3). The provision of information by the Supplier at the Time of Sale The PR says that Mr and Mrs L were not given sufficient information at the Time of Sale by the Supplier about Fractional Club membership, including about the ongoing costs and the fact that Mr and Mrs L’s heirs could inherit these costs. As I’ve already indicated, the case law on Section 140A makes it clear that it does not automatically follow that regulatory breaches create unfairness for the purposes of the unfair relationship provisions. The extent to which such mistakes render a

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credit relationship unfair must also be determined according to their impact on the complainant. I acknowledge that it is also possible that the Supplier did not give Mr and Mrs L sufficient information, in good time, on the various charges they could have been subject to as Fractional Club members in order to satisfy the requirements of Regulation 12 of the Timeshare Regulations (which was concerned with the provision of ‘key information’). But even if that was the case, I cannot see that the ongoing costs of membership were applied unfairly in practice. And as neither Mr and Mrs L nor the PR have persuaded me that they would not have pressed ahead with their purchase had the finer details of the Fractional Club’s ongoing costs been disclosed by the Supplier in compliance with Regulation 12, I cannot see why any failings in that regard are likely to be material to the outcome of this complaint given its facts and circumstances. As for the PR’s argument that Mr and Mrs L’s heirs would inherit the on-going management charges, I fail to see how that could be the case or that it could have led to an unfairness that warrants a remedy. Mr and Mrs L’s Commission Complaint I note that one of Mr and Mrs L’s concerns relates to alleged payments of commission by the Lender to the Supplier for acting as a credit broker and arranging the Credit Agreement. However, the PR has since accepted our approach to those concerns, and that in this case the commission paid by the Lender to the Supplier would not lead to the complaint being upheld. Conclusion In conclusion, I do not think that the Lender acted unfairly or unreasonably when it dealt with the relevant Section 75 claims, and I am not persuaded that the Lender was party to a credit relationship with Mr and Mrs L under the Credit Agreement that was unfair to them for the purposes of Section 140A of the CCA – nor do I see any other reason why it would be fair or reasonable to direct the Lender to compensate them. END OF COPY OF PROVISIONAL FINDINGS The PR’s response to my provisional findings about an unfair relationship My role as an Ombudsman isn’t to address every single point which has been made to date, but to decide what is fair and reasonable in the circumstances of this complaint. If I haven’t commented on, or referred to, something that either party has said, this doesn’t mean I haven’t considered it. Rather, I’ve focused here on addressing what I consider to be the key issues in deciding this complaint and explaining the reasons for reaching my final decision. The PR’s further comments in response to the provisional decision only relate to the issue of whether the credit relationship between Mr and Mrs L and the Lender was unfair. In particular, the PR has provided further comments in relation to whether the membership was sold to Mr and Mrs L as an investment at the Time of Sale.

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As outlined in my provisional decision, the PR originally raised various other points of complaint, all of which I addressed at that time. But they didn’t make any further comments in relation to those in their response to my provisional decision. Indeed, they haven’t said they disagree with any of my provisional conclusions in relation to those other points. And since I haven’t been provided with anything more in relation to those other points by either party, I see no reason to change my conclusions in relation to them as set out in my provisional decision. So, I’ll focus here on the PR’s points raised in response. The PR has provided further comments and evidence which in my view relate to whether Fractional Club membership was marketed or sold as an investment in breach of the prohibition in Regulation 14(3) of the Timeshare Regulations. However, as I explained in my provisional decision, while the Supplier’s sales processes left open the possibility that the sales representative may have positioned Fractional Club membership as an investment, it isn’t necessary to make a finding on this as it is not determinative of the outcome of the complaint. I explained that Regulatory breaches do not automatically create unfairness and that such breaches and their consequences (if there are any) must be considered in the round, rather than in a narrow or technical way. The PR’s comments and evidence in this respect do not persuade me that I should uphold Mr and Mrs L’s complaint, because they do not make me think it’s any more likely that the Supplier’s breach of Regulation 14(3) led Mr and Mrs L to enter into the Purchase Agreement and the Credit Agreement. I recognise the PR has interpreted Mr and Mrs L’s evidence differently to how I have and thinks it points to them having been motivated by the prospect of a financial gain from Fractional Club membership. In my provisional decision, I explained the reasons why I didn’t think Mr and Mrs L’s purchase was motivated by the prospect of a financial gain (i.e., a profit). And although I have carefully considered the PR’s arguments in response to this, I’m not persuaded the conclusions I reached on this point were unfair or unreasonable. The PR disagreed with my provisional finding that “there seems to me to be a very real risk that Mr and Mrs L’s recollections were coloured by the judgment in Shawbrook & BPF v FOS.” However, given the timing of the statement and call note I think it is fair and reasonable of me to make that observation. But, I also said that, regardless of the timing, I had concerns about the content of the statement and call note, which meant that I did not find it sufficiently persuasive to uphold the complaint, being: • The recollections/descriptions of what happened are quite brief, lacking detail that might make it more persuasive. • It comes across as a list of things the Supplier might have said that would breach Regulation 14(3) of the Timeshare Regulations. • It does not say that Mr and Mrs L were persuaded to purchase because they hoped or expected to make a profit. • Mr and Mrs L’s motivation in contacting the PR was not to recover what they’d spent on the purchase, but to get out of paying future annual management fees – which, having retired, they said they could no longer afford. My concerns about the evidence provided overall led me to conclude that the evidence was not sufficiently persuasive for me to conclude that a breach of Regulation 14(3) of the

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Timeshare Regulations was material to Mr and Mrs L’s decision to purchase. And I remain of that opinion. And I remain of that opinion. The PR says that the Supplier’s training manual corroborated Mr and Mrs L’s allegations. But the training manual, while leaving open the possibility that there was a breach of Regulation 14(3), does not exactly match what Mr and Mrs L say they were told – instead saying that the customer would “receive a proportionate share of the sales proceeds after sales costs in direct relation to the Fractional share of the property they own.” So, I do not think that is sufficient to change my provisional findings. The PR also said that the only benefit of the purchase to Mr and Mrs L was the potential of making a profit. But that is not true. They purchased an additional 4,000 fractional points, taking their annual allocation of points to spend on holidays from 12,000 to 16,000. So, there was a clear increase in their holiday purchasing power because of the purchase. Fractional Club membership also came with a shorter membership term and cheaper annual fees than their existing membership. So, there were a number of other benefits which may have been attractive to Mr and Mrs L. Indeed, they specifically mention the shorter membership term in their statement. Ultimately, for the above reasons, along with those I already explained in my provisional decision, I remain unpersuaded that any breach of Regulation 14(3) was material to Mr and Mrs L’s purchasing decision. And for that reason, I do not think the credit relationship between Mr and Mrs L and the Lender was unfair to Mr and Mrs L even if the Supplier had breached Regulation 14(3). My final decision For the reasons I’ve explained, I do not uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Mrs L and Mr L to accept or reject my decision before 21 April 2026. Phillip Lai-Fang Ombudsman

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