UK banks defeat watchdog in legal battle over historic loan complaints

Court ruling

The High Court in London has ruled against the Financial Ombudsman Service in a judicial review brought by Barclays, NatWest, Santander and Vanquis over historic consumer-credit complaints.

Justice Dexter Dias found that the ombudsman had made a fundamental legal error in the way it tried to handle overdraft and credit-card complaints outside the standard time limit.

The decision is a significant setback for the watchdog and narrows its room to extend complaint windows for older banking disputes.

What the dispute was about

The case centred on whether consumers could still complain about overdrafts and credit cards after the usual six-year period had expired.

Under the Financial Conduct Authority's rules, consumers generally have six years from the event complained of, or three years from when they first became aware of it, to bring a complaint.

The Financial Ombudsman Service had taken a broader view of its discretion in historic cases, which prompted the banks to challenge the approach in court.

Why it matters

The ruling reduces the exposure of banks to compensation claims tied to older lending terms and account charges.

It also limits how far back consumers can reopen disputes over banking products that fall outside the normal complaint window.

For the ombudsman, the judgment is likely to shape how it handles future consumer-credit cases involving old account and lending issues.

Wider context

The case lands amid broader government efforts to curb or reform the Financial Ombudsman Service's powers and tighten complaint handling rules in financial services.

It also comes at a time when complaints and redress issues have been prominent in UK financial services, although the court ruling does not affect the Financial Conduct Authority's separate motor-finance redress process.

The challenge was brought by four banks and lenders: Barclays, NatWest, Santander and Vanquis.

What happens next

It is not yet clear whether the Financial Ombudsman Service will appeal.

It also remains to be seen whether the Financial Conduct Authority or the Treasury will issue a formal response.

The practical effect of the ruling will depend on how firms, the ombudsman and regulators apply it to historic complaints in the coming weeks and months.