Key facts
- The High Court has ordered the UK's Financial Ombudsman Service (FOS) to pay millions in legal fees to four banks.
- The FOS must cover costs for Barclays, Natwest, Santander, and Vanquis Bank following a judicial review.
- The court found the FOS made a 'fundamental error of law' in its approach to time-barring complaints.
- Barclays alone incurred around £830,000 in legal fees, with the total bill expected to approach £2 million.
- The ruling comes as the government plans to curb the FOS's powers and introduce a 10-year time limit for complaints.
The UK's Financial Ombudsman Service (FOS) has been ordered by the High Court to pay millions of pounds in legal fees to Barclays, Natwest, Santander, and Vanquis Bank. This decision follows the court's quashing of four FOS rulings made earlier this year concerning overdrafts and credit cards. The High Court found that the FOS had made a "fundamental error of law" by attempting to expand its time-barring jurisdiction over historical lending relationships. The ombudsman had argued that each day a bank did not rectify an unfair credit deal constituted a new event, thereby resetting the standard six-year complaint limit.
The group of banks sought compensation for their legal expenses after the June ruling. The FOS contended that forcing a public dispute resolution body to cover full legal costs would have a "chilling effect" on its operations. However, the court rejected this argument, stating that enforcing costs against public authorities would be conducive to good administration and serve as a reminder against pursuing flawed legal points. The judge also criticized the FOS for its "shifting trial strategy" which caused "much unnecessary forensic heat and disputation."
Barclays alone incurred approximately £830,000 in fees, while Vanquis and Natwest incurred around £353,000 and £158,000 respectively. Santander's costs, though undisclosed, are expected to bring the total bill close to £2 million. Santander, Natwest, and Vanquis are entitled to 100% of their legal costs, while Barclays, which led the legal challenge, was awarded 92% after an eight percent deduction related to a rejected human rights argument. A costs judge will finalize the exact sum after reviewing invoices.
This ruling comes amid broader scrutiny of the FOS, with the government initiating measures to curb its perceived expansion into a "quasi-regulator." Legislation is planned to introduce a 10-year time limit for bringing complaints to the FOS, with the Financial Conduct Authority (FCA) having the ability to grant exceptions. The government aims to restore the FOS to its original role as an impartial and efficient dispute-resolution service.