UK banks win court challenge over historic loan complaint limits

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UK banks win loan complaint case

Highlights

High Court rules the Financial Ombudsman Service erred by accepting overdraft and credit card complaints outside the six-year timeframe, supporting Barclays, NatWest, Santander, and Vanquis.
The decision restricts consumers' ability to bring unfair lending complaints to the FOS, impacting nearly 23,000 credit card claims made last year.
The judgment pressures the FOS as the UK government moves to reduce its powers, with banks arguing stricter limits lower legal and compensation risk.

High Court ruling on complaint deadlines

As reported by Financial Times, the High Court rules on Wednesday that the Financial Ombudsman Service made a fundamental error of law by accepting complaints about overdrafts and credit cards outside the established six-year timeframe.

Barclays, NatWest, Santander and subprime lender Vanquis bring the legal challenge against the FOS. Mr Justice Dexter Dias says the ombudsman's approach seriously and unjustifiably undermines the rationale for a time limit and the need for swift and informal dispute resolution.

Under Financial Conduct Authority rules, consumers have six years to complain to the ombudsman about a particular incident, or, if that period is missed, three years from the date they first become aware of the issue. The FOS argues that court rulings, including a Supreme Court judgment in 2023, mean lenders have an ongoing corrective responsibility, and that a failure to fix a problem can amount to a fresh omission that resets the complaints clock.

In an unusual intervention, the FCA opposes the FOS position in court and says it is concerned the ombudsman is misinterpreting the law to grant itself new powers. The FOS says it is disappointed with the judgment and is carefully considering what it means for affected cases and for the wider implications.

Impact on banks, consumers and UK oversight

The ruling is expected to curb consumers' ability to bring unfair lending complaints to the FOS under the Consumer Credit Act 1974. Complaints about credit cards are the third-largest source of cases at the ombudsman last year, with almost 23,000 claims made in that area.

Banks say the FOS approach carries sweeping consequences for historic loans, and Santander submits evidence that complaints against the bank surge under the expanded timeframe. NatWest welcomes the decision, saying it has a long history of working productively with the FOS and joined the case only after discussions failed to resolve its concerns.

The judgment adds pressure on the FOS as the UK government already overhauls the body to curb its powers after criticism that it acts like a quasi-regulator and deters investment in the UK. Barclays also says it is pleased with the decision, reinforcing the sector's view that clearer limits on retrospective complaints reduce legal and compensation risk.

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