A broker is taking legal action against Paymentshield, alleging that its decision to cut his trail commission from 27 per cent to 5 per cent is a breach of contract.
In October 2011, Paymentshield informed a number of brokers that their commission would fall to 5 per cent from November as they had not submitted any business to it in the past 12 months.
The insurance provider said at the time that such firms had become dormant and were therefore subject to a dormancy clause in its terms and conditions.
The terms and conditions state: “Where your agency becomes dormant or closed to new business, we reserve the right to revert commission levels to dormant agency rates.”
But D&D Consultants director David Nicholson alleges the contract is unfair and would have no standing in court because it fails to define the term dormant agency or to publish dormant agency rates.
He says: “This clause has no defined terms and is therefore open to interpretation and as such constitutes an unfair contract. I am informed by my solicitor that it would not stand up in court.
“The cut in my commission will cost my business £10,000 a year, which is the difference between me managing to stay afloat and being forced to shut up shop.”
He adds: “This commission has helped me through the tough times, but as I see it, Paymentshield is now trying to take almost all of it from me.”
He has been in correspondence with Paymentshield for some weeks and after his latest letter threatening legal action went unanswered for more than seven days he instructed his solicitor to begin legal proceedings last week.
A spokeswoman for Paymentshield says: “We can assure you that we treat every complaint against Paymentshield seriously.
“However, since Mr Nicholson has decided to seek legal advice we are unfortunately unable to comment on his specific situation.”
Paymentshield has told brokers that they can reinstate their commission to its original rate if they submit one policy per month for six months to the firm, as that would mean they would no longer be classed as dormant.
But Nicholson and other brokers say the provider has become increasingly uncompetitive in recent years.