Administrative Court dismisses judicial review challenge of FOS "mortgage prisoner" decision

The Administrative Court has dismissed an application for judicial review of a decision by the Financial Ombudsman Service (FOS) in the context of a complaint against a lender by an individual borrower who claims she is trapped in her mortgage (a so-called "mortgage prisoner"): Mortgage Agency Service Number Five Ltd, R (On the Application Of) v Financial Ombudsman Service Ltd [2022] EWHC 1979 (Admin).

The judgment will be of general interest to financial institutions as an example of a decision of the FOS being subject to judicial review. In this case, the court rejected the lender's argument that the FOS had accepted jurisdiction over complaints which were out of time. The court found that there was no other basis for challenging the final decision of the FOS and so dismissed the application.

The result demonstrates the court's reluctance to interfere with the wide remit of the FOS to consider a complaint by reference to what is "fair and reasonable in all the circumstances of the case" (s.228 of the Financial Services and Markets Act 2000 (FSMA)). In particular, the court recognised that it is for the FOS to decide the parameters of the complaint when considering whether it will accept jurisdiction over it. The court also acknowledged the FOS's wide discretion to consider the background and context to complaints found to be within its jurisdiction.

The decision is of particular interest given the introduction of the FCA's new Consumer Duty, which aims to set higher standards of consumer protection across the financial services sector (see our FSR blog post), which may drive an increase in complaints made to the FOS. This, in turn, could spark a rise in challenges to FOS decisions relating to the Consumer Duty. Set against this landscape, the emphasis on the flexibility granted to the FOS highlights the potential difficulties in seeking to challenge future decisions.

The case is considered in more detail below.

Background

The claimant (MAS5) is a mortgage lender which is part of the Co-operative Bank, and which currently owns the mortgage of Mrs Gwendolyn Davies, the Interested Party to the claim.

In October 2018, Mrs Davies made a complaint to MAS5 about the fairness of the interest rates charged under her mortgage, and subsequently escalated her complaint to the FOS in December 2018.

The FOS decided that it would be able to investigate the complaint about the interest rate that MAS5 applied to Mrs Davies' mortgage from October 2012 (i.e. for the six years prior to the initial complaint made by Mrs Davies, in accordance with Rule 2.8.2 in Chapter 2 of the "DISP Dispute Resolution: Complaints" section of the FCA Handbook (DISP)). As part of this investigation, the FOS confirmed that it would review the history of Mrs Davies' mortgage from the time it reverted onto the standard variable mortgage rate in January 2009.

MAS5 applied for judicial review of the FOS's decision to consider the rates applied to the mortgage prior to October 2012, on the ground that this decision was an error of law and goes back further than the jurisdiction of the FOS permits (i.e. more than six years before the complaint was made in October 2018).  MAS5 did not challenge the decision of the FOS to investigate the complaint about the interest rate applied to the mortgage from October 2012.

Decision

MAS5's application for judicial review was dismissed. The key elements of the decision were as follows:

1. FOS entitled to identify the parameters of the complaint. The court stated that it is for the FOS to decide what the complaint is and whether it will accept jurisdiction over it. In the court's view, the FOS had clearly both: (a) identified the complaint as it was understood; and (b) stated which parts the FOS would, and would not, accept jurisdiction over.
2. FOS did not accept jurisdiction for time-barred complaints in this case. The court found that the jurisdiction the FOS accepted was, exclusively, to consider complaints about interest charged after October 2012, and the proposed consideration of interest variations before October 2012 was firmly set as background or context only. Accordingly, there was no basis for challenging the FOS's final decision on the basis that it accepted jurisdiction over complaints which were out of time.
3. FOS has broad discretion to consider the background to complaints. The court emphasised the broad discretion of the FOS under s.228 FSMA and DISP 3.6.1R to decide what it will take into account when deciding what is "fair and reasonable in all the circumstances of the case". In the court's view, the FOS was entitled to consider the background to the complaints within its jurisdiction, including the setting of the prevailing rate. The FOS's decision as to what it would take into account was not irrational or unlawful.