The UK’s banks ombudsman could be forced to pay millions to a group of the UK’s top lenders after the High Court quashed four decisions the body made earlier this year on overdrafts and credit cards.
The Financial Ombudsman Service (FOS) has been put on the hook for what could top £2m in legal fees after the court sided with Barclays, Natwest, Santander, and Vanquis Bank in a major jurisdictional challenge.
The High Court ordered the FOS to cover the four lenders’ legal costs following a judicial review in June, which overturned July 2024 ombudsman rulings on unaffordable credit card and overdraft complaints.
The court ruled in favour of the banks after finding the ombudsman had made a “fundamental error of law” by attempting to expand its time-barring jurisdiction over historical lending relationships. The FOS had sought to bypass the standard six-year limit on complaints by arguing every single day a bank did not fix an unfair credit deal counted as a new event, which reset the 6-year clock
Following the June ruling, the group of banks sought compensation for legal expenses. The FOS argued forcing a public dispute resolution body to cover full legal costs would create a “chilling effect” on its work.
‘Chilling’ warning from FOS fails to hold up in court
But the court rejected this, ruling that enforcing costs against public authorities “will likely be conducive to good administration and be a salutary reminder about the inadvisability of taking bad or obviously flawed points”.
The judge also criticised the FOS for causing “much unnecessary forensic heat and disputation,” after its shifting trial strategy.
The judgment revealed that Barclays alone racked up around £830,000 in fees, while Vanquis and Natwest incurred approximately £353,000 and £158,000 respectively. Santander’s costs, which are not disclosed, are expected to push the bill towards the £2m mark.
Under the court’s order, Santander, Natwest, and Vanquis are entitled to 100 per cent of their legal costs. Barclays, which led the lenders in the legal battle, was awarded 92 per cent, following an eight per cent deduction after its secondary human rights argument was rejected. The exact final sum will not be settled until a costs judge completes a line-by-line review of their invoices.
The court ordered payment to be made within 14 days of the court’s order.
The ruling comes as the FOS faces a broader reckoning after the government launched a clampdown on the body earlier this year to curb concerns it had begun to operate as a “quasi-regulator”.
The government will legislate on the introduction of a 10-year time limit for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit. It added that it plans to return the FOS to its original role as an impartial dispute-resolution service that resolves complaints “quickly and effectively”.
The FOS has been approached for comment.