High Court curbs UK financial ombudsman’s jurisdiction after banks challenge time-bar overreach

Four UK lenders – NatWest, Barclays, Santander and Vanquis – had each sought judicial review against decisions by the ombudsman to assume jurisdiction over complaints concerning lending decisions which had taken place before the six-year time bar permitted by the Financial Conduct Authority (FCA).

The ombudsman had claimed it had jurisdiction over the whole length of the credit relationships, including beyond the time bar, in part because previous court rulings meant lenders had an ongoing duty of correction – but Mr Justice Dexter Dias dismissed this (69-page/653KB PDF) as “a fundamental error of law”.

Jacob Hay, a financial litigation expert with Pinsent Masons – which acted on behalf of NatWest – said the decision put a spotlight on the limitations of the FOS’s powers.

“The effect of the judgment is a return to a more orthodox understanding of the financial ombudsman service’s jurisdiction,” he explained.

“Jurisdiction, in the FOS’s case, means the power to investigate and, if appropriate, grant redress in relation to a complaint. Barring the application of the three-year rule, FOS can only grant remedies in relation to events within six years of a complaint.

“FOS’s attempts to justify a more expansive approach, whether by reference to an alleged ‘corrective responsibility’ or by arguing that a single one-time ‘event’ provides jurisdiction over the entire credit relationship, have been rejected.”

The FCA had been given permission to intervene in the case after opposing the move by the FOS to pursue the cases beyond their time restriction, thought to be the first time the regulator has intervened in such a manner.

The case came about after four customers – one with each lender – had complained to the ombudsman that their credit relationship with their lender was unfair due to that lender extending unaffordable credit facilities, either through credit cards or overdrafts.

The customers had brought the complaints challenging interest and charges they had paid - dating back years beyond the time bar period and, in NatWest’s case, into the previous century. Given the dispute in relation to jurisdiction, the merits of each of the complaints have not yet been determined.

FCA rules mean consumers generally have six years from an ‘event’ to raise a complaint to the FOS, or three years from the date they first become aware of that event if they are outwith that timeframe. However, the ombudsman claimed that subsequent court rulings meant banks failing to address issues – such as not refunding previous charges – would each be classed as a fresh omission which extended the complaint period, effectively resetting the clock each day no corrective action was taken.

The ombudsman had acknowledged ahead of the case that its interpretation of the rules was a new approach, following a review of the scope of its jurisdiction.

The banks challenged this interpretation through judicial review, which was upheld by Mr Justice Dexter Dias on 24 June, after he said the FOS’s powers to decide what is ‘fair and reasonable in all the circumstances’ covered only ‘events’ within the scope of the jurisdiction granted to it by the FCA rules.

The judge said that nothing in the relevant case law gave FOS the power to treat uncorrected breaches as a new event which reset the limitation period.

The High Court ruled that this interpretation was fundamentally wrong, and that the FOS’s powers were limited by the FCA’s rules, quashing their previous approach.

The FOS told the Financial Times it was ‘disappointed’ with the judgment and would consider the wider implications along with the cases impacted by the ruling.