Obligation to Advise

| Published on July 21, 2016

Bank Not Obliged To Advise Customer

In general, a bank does not have an obligation to provide legal advice to customers about the specific terms of a loan agreement when they borrow money.

When a bank does provide advice to customers it will owe a contractual duty to use reasonable care and skill. The bank will also owe a general duty of care (the basis for alleging any claim in negligence), provided a relationship of sufficient proximity exists between it and its customers, such that it has assumed responsibility for them.

An Example

In the recent high court case of Finch and another v Lloyds TSB Bank PLC and others [2016] EWHC1236(QB) the Court was asked to consider if a bank had a legal duty to advise a borrower about an onerous term contained in the contract. The specific term imposed a liability on the customer to pay particular costs of the bank if they chose to repay the loan early, before the expiry of the fixed term. The customer felt the term should have been brought to its attention.

The claim brought by the customer was that the bank owed its customers both a contractual and general duty of care to advise them of such onerous terms and the scope of any liability for the bank’s costs. Also, that the bank had made careless and misleading statements about the terms of the contract because the bank said the terms had been ‘tailored’ to the customer’s needs and that it was the customer’s ‘trusted adviser’.

The Court decided the bank had no contractual duty to advise the borrower about the terms of the loan agreement and that there had been no misrepresentation because the bank had not been informed of the customer’s intention to repay early. Bankers do not have a general duty to provide voluntary disinterested advice to their customers.

This is a welcome decision for banks but not necessarily so much for borrowers. This case may have wider implications. We recommend whenever you are entering into a contract, such as with a bank for a loan, that you first seek legal advice. Do not rely upon the bank’s representative, however helpful they may appear.

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