At VWM Capital, we offer investment opportunities in UK litigation claims that are uncorrelated to traditional capital markets and, therefore, relatively insulated from market volatility. Among the litigation claims we fund are subprime mortgage undisclosed commission (UDC) claims. Below you can find out more about these cases.
The payment protection insurance (PPI) mis-selling scandal was a significant issue in the UK. Before Citizens Advice filed a ‘super complaint’ in 2005, banks had sold around 45 million PPI policies to customers, totalling approximately £44bn. Many of these customers were pressured into purchasing PPI or weren’t even aware they had it, leading to 32 million of them submitting a claim – and costing financial institutions over £53bn in compensation.
Some experts have speculated that subprime mortgage undisclosed commission (UDC) claims could eclipse even PPI claims. But what is this type of UDC claim, and why do we fund these cases? Our guide has everything you need to know.
What are subprime mortgage undisclosed commission (UDC) claims?
‘Subprime’ doesn’t refer to the interest rate on the mortgage, but rather the below-average credit score of the individual being considered. In these cases, a prime conventional mortgage will not be offered, as the borrower is considered a higher risk to the lender. To compensate for this risk, lending institutions will generally charge a higher interest rate, as well as make them adjustable-rate mortgages (ARMs), where the interest rate can increase at specified points in time.
What’s come to light recently is that millions of subprime mortgage customers have been knowingly overcharged by their lenders – many of which are household names. These lenders have been found guilty of paying and receiving hidden, or undisclosed, commissions, paid for via higher interest charges over the whole term of the mortgage. In some extreme cases, the cost to the customer has reached around £50,000.
Traditionally, subprime mortgage lenders sold their mortgages through a network of brokers and mortgage advisers, and as the usage of brokers boomed in the 1990s and early 2000s, so did the number of borrowers. Brokers are, of course, supposed to find their customers the most suitable deal available, but many lenders were prepared to offer them added commission to send business their way.
This financial incentive compromised the broker’s ability to remain impartial and act in the customer’s best interests, so if the customer was not given the full details of the arrangement at the time, the commission was illegal under UK law. However, in most cases, it was hidden so well that no one found out until much later.
As with PPI, affected customers are within their rights to claim the money back.
Examples of subprime mortgage undisclosed commission (UDC) claim case law
At VWM Capital, when we fund litigation claims, we look for established case law – where judgments in past cases have been made in favour of claimants, therefore setting a precedent for future rulings.
When it comes to subprime mortgage undisclosed commission claims, there is a significant amount of case law. For example:
Wood v Commercial First Business Ltd & ors
Business Mortgage Finance 4 plc v Pengelly [2021] EWCA Civ 471
Mrs Wood and Mr Pengelly had obtained loans secured against their properties where the broker had received an undisclosed commission. Both borrowers brought claims for rescission and for recovery of the payments as secret profits. When a conjoined appeal was later brought forward, The Court of Appeal ruled it was not necessary to find a fiduciary duty to grant civil remedies for the payment or receipt of a bribe or secret commission. The judgment also clarified the level of disclosure necessary for a commission to be deemed “half-secret”.
Hurstanger Limited v Wilson [2007] EWCA Civ 299
In this case, a broker negotiating a loan was paid a consumer fee by the borrower and a commission from the lender. Although the borrower was notified about the commission, the court found that the broker had breached his fiduciary duty because he did not disclose the actual amount. The lender was, therefore, held liable to the borrowers as an accessory to the broker’s breach.
Bribery Act 2010
In the Bribery Act 2010, offences related to being bribed are defined by six distinct cases. Case 4 is where:
- A person (R) requests, agrees to receive or accepts a financial or other advantage, and
- the request, agreement or acceptance itself constitutes the improper performance by (R) of a relevant function or activity.
While accepting the commission is not illegal in and of itself, by accepting one and not disclosing the full amount to the borrower, the broker has accepted financial or other advantage, given the lender preferential treatment, and therefore not fulfilled their role correctly.
Further, the act clarifies that “it does not matter whether R knows or believes that the performance of the function or activity is improper.”
Why VWM Capital funds these types of cases
At VWM Capital, we’re proud to be one of the first litigation funds to use algorithm-based technology to improve legal financing. By automating admin-heavy elements of preselection, we’re able to process a high volume of lower-sum cases accurately. This allows us to target funding towards cases that support ESG investment objectives as well as offer risk diversification benefits to our investors.
Using market-leading lawtech, we can accurately preselect the cases with the highest chances of a successful outcome. Next, we seek expert legal opinions before approving cases for funding – but only if they meet our stringent criteria, which includes securing ATE insurance on every claim.
The scale of subprime mortgage mis-selling and undisclosed commissions in the UK means there are now a great many claims requiring funding. These claims usually satisfy our criteria and settle in favour of the claimant well before they reach court, meaning less time before returns are realised.
And it isn’t just our investors who benefit. Many of the people eligible to claim for undisclosed commissions simply couldn’t do so without the aid of litigation funding. By giving them the necessary financial backing, we help improve access to justice for those who need it the most.
Invest in forward-thinking litigation funding
There is a rich pool of subprime mortgage UDC claims in UK courts, presenting an excellent opportunity for investors keen on making a positive social impact. At VWM Capital, we combine the power of technology with human legal expertise to maximise returns while mitigating risk, providing fast-tracked funding for hundreds of lower-figure cases every week.
You can read more about how litigation funding works here. For all investment enquiries, please contact the team.