Mitsubishi HC Capital UK Plc · DRN-6109776

The complaint Mr S’s complaint is, in essence, that Mitsubishi HC Capital UK Plc trading as Novuna Personal Finance (the ‘Lender’) acted unfairly and unreasonably by (1) being party to an unfair credit relationship with him 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 S and Mrs S were members of a timeshare provider (the ‘Supplier’) - having purchased a trial membership. But this complaint is about their membership of a product that I’ll call the ‘Fractional Club’ – which they bought on 4 August 2019 (the ‘Time of Sale’). They entered into an agreement (the ‘Purchase Agreement’) with the Supplier to buy 1300 fractional points at a cost of £18,533. Fractional Club membership was asset backed – which meant it gave Mr S and Mrs S 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 S paid for their Fractional Club membership by taking finance of £22,490 from the Lender (the ‘Credit Agreement’) which included an amount to pay the balance outstanding on the loan they had taken out to pay for their trial membership. Mr S – using a professional representative (the ‘PR’) – wrote to the Lender on 1 June 2023 (the ‘Letter of Complaint’) to raise a number of different concerns. As those concerns haven’t changed since they were first raised, and as both sides are familiar with them, it isn’t necessary to repeat them in detail here beyond the summary above. The Lender dealt with Mr S’s concerns as a complaint and issued its final response letter on 29 October 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. In short the Investigator said: • From what Mr S said in his witness testimony the prospect of a gain or profit wasn’t an important and motivating factor in his decision to take out Fractional Club membership, so the credit relationship between him and the Lender wasn’t unfair even if the Supplier breached Regulation 14(3) of the Timeshare Regulations. • It isn’t likely Mr S was pressured into purchasing Fractional Club membership • It’s possible that some of the terms in the purchase agreement were unfair under the relevant unfair contract terms regulations but there isn’t persuasive evidence the terms have been applied unfairly against him. • It’s possible the Supplier didn’t give enough information about the costs of membership but any failings in this regard are unlikely to have prejudiced the purchasing decision. • The commission arrangements between the Lender and Supplier didn’t lead to the credit relationship being unfair to Mr S.

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• Even if the Lender failed to carry out appropriate checks before lending there isn’t persuasive evidence the lending was unaffordable or that the decision to lend resulted in an unfair credit relationship. • Based on the evidence it isn’t likely that the Supplier made factual statements that were untrue which enticed Mr S into purchasing Fractional Club membership so there weren’t actionable misrepresentations by the Supplier. Mr S disagreed with the Investigator’s assessment and asked for an Ombudsman’s decision – which is why it was passed to me. The legal and regulatory context In considering what is fair and reasonable in all the circumstances of the complaint, I am required under DISP 3.6.4R to take into account: relevant (i) law and regulations; (ii) regulators’ rules, guidance and standards; and (iii) codes of practice; and (where appropriate), what I consider to have been good industry practice at the relevant time. The legal and regulatory context that I think is relevant to this complaint is, in many ways. no different to that shared in several hundred published ombudsman decisions on very similar complaints – which can be found on the Financial Ombudsman Service’s website. And with that being the case, it is not necessary to set out that context in detail here. But I would add that the following regulatory rules/guidance are also relevant: The Consumer Credit Sourcebook (‘CONC’) – Found in the Financial Conduct Authority’s (the ‘FCA’) Handbook of Rules and Guidance Below are the most relevant provisions and/or guidance as they were at the relevant time: • CONC 3.7.3 [R] • CONC 4.5.3 [R] • CONC 4.5.2 [G] The FCA’s Principles The rules on consumer credit sit alongside the wider obligations of firms, such as the Principles for Businesses (‘PRIN’). Set out below are those that are most relevant to this complaint: • Principle 6 • Principle 7 • Principle 8 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. And having done that, I agree with the Investigator that this complaint shouldn’t be upheld, and for broadly the same reasons. However, before I explain why, I want to make it clear that my role as an Ombudsman is not to address every single point that has been made to date. Instead, it is to decide what is fair and reasonable in the circumstances of this complaint. So, if I have not commented on, or referred to, something that either party has said, that does not mean I have not considered it.

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The PR’s comments in response to the opinion of the Investigator concentrate on the credit relationship between Mr S and the Lender being unfair because Fractional Club membership was sold to him and Mrs S as an investment at the Time of Sale and this is what I will focus on. The PR hasn’t disagreed with what the Investigator has said about any of the other issues they raised and given this I don’t think it is necessary for me to address these save to say I agree with the conclusions that Investigator came to on them. Section 140A of the CCA: did the Lender participate in an unfair credit relationship? The Supplier’s alleged breach of Regulation 14(3) of the Timeshare regulations The Lender does not dispute, and I am satisfied, that Mr S’s and Mrs S’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 says that the Supplier did exactly that at the Time of Sale – saying, in summary, that Mr S was told by the Supplier that Fractional Club membership was the type of investment that would appreciate in value. The term “investment” is not defined in the Timeshare Regulations. But for the purposes of this 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 Allocated Property clearly constituted an investment as it offered Mr S and Mrs S 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. 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 S and Mrs S 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, it is clear that the Supplier made efforts to avoid specifically describing membership of the Fractional Club as an ‘investment’ or quantifying to prospective

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purchasers, such as Mr S and Mrs S, 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 acknowledge 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 also possible that Fractional Club membership was marketed and sold to Mr S and Mrs S as an investment in breach of Regulation 14(3) as they have alleged. I have considered what the PR has said in response to the opinion of the Investigator about the evidence establishing that membership was marketed and sold as an investment. However, whether, or not, there was a breach of the relevant prohibition by the Supplier is not ultimately determinative of the outcome in this complaint for reasons I explain below. And with that being the case, I don’t think it is necessary for me to make a formal finding on that particular issue for the purposes of this decision. Was the credit relationship between the Lender and the Consumer 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 such a breach would have on the fairness of the credit relationship between Mr S 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 S and the Lender that was unfair to him and warranted relief as a result, whether the Supplier’s breach of Regulation 14(3) led him to enter into the Purchase Agreement and the Credit Agreement is an important consideration. But 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 S and Mrs S decided to go ahead with their purchase. They have provided an undated and unsigned statement of their recollection of the sale. This is what they say about what happened at the Time of Sale. “We were advised that our trial membership didn’t meet our needs and we could upgrade to a Fractional membership which could provide us with holidays every year for the rest of our lives and would give us something we could give to our children who would also be able to take holidays every year. We were asked how much we thought we would ordinarily spend on holiday accommodation each wear for the next 10 or 20 years and shown that if we paid a similar amount we and our children would never have to pay for quality holiday accommodation again. However, we advised the representatives on several occasions that the package that they were offering was not affordable to us. There was lots of toing and froing by senior reps to try and present us with an affordable option. We were advised that this would be an asset and once all the fractions were sold we would receive a payout. We were drawn a picture of a square representing the property and then a proportion as boxed off to represent our purchase, indicating the remainder of the property as left to be sold.” The PR has referred to the last paragraph above in its response to the Investigator’s opinion in support of its argument that not only was Fractional Club membership marketed and sold as an investment but that this was ‘causative’ of them purchasing membership. But Mr S and

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Mrs S saying they were told membership would be an asset and that when the fractions were sold they would receive a payout to my mind does nothing more than explain how Fractional Club membership worked in practice - in that when membership ends the Allocated Property will be sold and they will get some money back. That isn’t the same as them saying they hoped to make some gain or profit when their membership ended and there is nothing in what they have said that persuades me this was an important or motivating reason for their purchase. I note that Mr S and Mrs S also went on to say: “Our decision to purchase membership products from CLC were based mainly on verbal statements made by the representatives about the benefits of such investments would bring. We trusted the CLC staff had our best interests in mind and wanted to provide us with high quality, good value, family holidays. With so many verbal comments made during the sales presentations, which lasted many hours, the signing of the agreement was always at the end of a very long day and it was impossible to check it contained the promises made.” Although they use the word ‘investments’ what they have said, when read as a whole, suggests to me that the benefits which led them to purchase membership were the high quality, good value family holidays they expected to enjoy and it is this they were investing in. This reinforces my view that they didn’t purchase Fractional Club membership because they hoped to make some gain or profit. My finding that the prospect of a gain or profit wasn’t a motivating factor in Mr S’s and Mrs S’s decision to purchase membership doesn’t mean they 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 what Mr S and Mrs S have said doesn’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 had marketed or sold the Fractional Club membership as an investment in breach of Regulation 14(3) of the Timeshare Regulations, I am not persuaded that Mr S’s and Mrs S’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 whether, or not, there had been a breach of Regulation 14(3). And for that reason, I do not think the credit relationship between Mr S and the Lender was unfair to him even if the Supplier had breached Regulation 14(3). Having considered everything and in summary, I am satisfied on the evidence provided in this complaint that: • There were no actionable misrepresentations by the Supplier so the Lender didn’t act unfairly or unreasonably when it dealt with Mr S’s Section 75 claims. • The credit relationship wasn’t rendered unfair to Mr S under Section 140A because of the alleged; pressure to purchase; use of an unauthorised credit intermediary; unfair contract terms. • Mr S wasn’t motivated to purchase Fractional Club membership because he hoped to make some gain or profit when membership came to an end so the credit relationship wasn’t rendered unfair under Section 140A for that reason even if the Supplier had marketed membership as an investment. • The commission arrangements between the Lender and Supplier were unlikely to have led to a sufficiently extreme inequality of knowledge that this rendered the credit relationship unfair to Mr S.

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Conclusion In conclusion, given the facts and circumstances of this complaint, I do not think that the Lender acted unfairly or unreasonably when it dealt with Mr S’s Section 75 claims and I am not persuaded that the credit relationship between Mr S and the Lender under the Credit Agreement and related Purchase Agreement was unfair to him. So, I don’t think it is fair or reasonable that I uphold this complaint on that basis. And having taken everything into account, I see no other reason why it would be fair or reasonable to direct the Lender to compensate him. My final decision I don’t uphold this complaint for the reasons set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr S to accept or reject my decision before 28 April 2026. Philip Gibbons Ombudsman

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