The UK’s Financial Ombudsman Service faces a legal costs bill that could exceed £2m after the High Court ruled decisively in favour of a group of major lenders.
The court sided with Barclays, Natwest, Santander, and Vanquis Bank following a judicial review that overturned ombudsman rulings made in July 2024 on unaffordable credit card and overdraft complaints.
The High Court found the FOS had made a “fundamental error of law” by attempting to expand its time-barring jurisdiction over historical lending relationships between banks and customers.
The ombudsman had argued that every single day a bank failed to fix an unfair credit deal counted as a new event, which would effectively reset the standard six-year complaints clock.
Barclays alone accumulated approximately £830,000 in legal fees during the proceedings, with Vanquis and Natwest incurring around £353,000 and £158,000 respectively.
Santander’s undisclosed costs are expected to push the total bill toward the £2m mark, according to details revealed in the judgment.
The FOS warned that forcing a public dispute resolution body to cover full legal costs would create a “chilling effect” on its ability to carry out its work effectively.
The court rejected that argument outright, 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” following what the court described as a shifting trial strategy during proceedings.
Santander, Natwest, and Vanquis were each awarded 100 per cent of their legal costs, while Barclays received 92 per cent after an eight per cent deduction because its secondary human rights argument was rejected.
The final sum will not be confirmed until a costs judge completes a detailed line-by-line review of the invoices submitted by all four lenders.
The court ordered that payment must be made within 14 days of the ruling being issued, applying immediate financial pressure to the ombudsman service.
The ruling arrives as the FOS faces wider scrutiny after the government launched a clampdown on the body amid concerns it had begun operating as a “quasi-regulator” beyond its original remit.
The government has announced plans to legislate a 10-year time limit for bringing complaints to the FOS, while giving the Financial Conduct Authority the ability to make exceptions to that limit.
Ministers stated they intend to return the FOS to its original role as an impartial dispute resolution service that handles complaints “quickly and effectively.”