How the Financial Ombudsman Handles Unaffordable Lending Complaints
The Financial Ombudsman Service (FOS) is the free, independent dispute resolution scheme for financial services in the UK. It handles tens of thousands of unaffordable lending complaints every year and its approach has shaped how this whole area of consumer redress works. Whether you complain yourself or use a regulated claims partner, if the lender rejects your complaint, FOS is where it goes next.
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When you can refer a complaint to FOS
You can refer a complaint to FOS once one of two things has happened:
- The lender has issued a final response and you are not satisfied with it. You then have six months from the date of that final response to refer to FOS.
- Eight weeks have passed since you complained to the lender and they have not issued a final response.
This is set out in the FCA’s DISP rules. The eight-week rule is important — it means the lender cannot delay you indefinitely.
The two-stage test FOS applies
FOS does not simply ask whether the lender did some checks. It applies a two-stage approach to affordability:
- Stage one — were the checks reasonable and proportionate? FOS assesses whether what the lender did was adequate given the size and term of the credit, the cost relative to income, and any visible warning signs.
- Stage two — what would proper checks have shown? Even if the lender did some checks, FOS will look at what reasonable and proportionate checks would have revealed about the borrower’s actual position. If those checks would have shown the lending was unaffordable, the complaint usually succeeds.
Stage two is decisive in many cases. Lenders sometimes argue their checks “passed”, but FOS asks what an adequate check would have produced — typically established from bank statements, credit-file data and the borrower’s own evidence at the time. The combination is often very different from what the lender chose to rely on.
FOS time limits — the six-and-three-year rule
FOS can normally only consider a complaint that is brought within:
- Six years of the event being complained about, or
- If later, three years from when the consumer became aware (or ought reasonably to have become aware) that they had cause to complain.
These rules are in DISP 2.8.2R. The “three years from awareness” branch is what allows complaints about older payday loans, credit cards and similar to proceed. FOS has consistently accepted that for many borrowers, awareness only came when the press began covering unaffordable lending claims, often years after the credit was given.
The FOS process in practice
When a complaint is referred to FOS, it typically progresses through these stages:
- Initial assessment — a case handler is allocated and reviews the complaint, the lender’s file and any submissions.
- Investigator’s view — the investigator issues a non-binding view, sometimes called an “adjudication”. Either party can accept it or push for an Ombudsman decision.
- Ombudsman’s final decision — if either side rejects the investigator’s view, an Ombudsman issues a final decision. If the consumer accepts it, it is binding on the lender.
Many complaints are resolved at the investigator stage. The full process can take several months and longer where the case is complex or the lender disputes the view, particularly given FOS’s ongoing case backlog.
The award limit
FOS can require a lender to pay redress up to a fixed monetary limit. For complaints referred to FOS on or after 1 April 2024, the limit is £430,000 (it was £415,000 the year before, and lower in earlier years). Above the award limit, FOS can recommend a higher figure but the lender is only legally required to pay up to the limit.
For most unaffordable lending complaints, the limit is more than enough. It becomes relevant in cases where many years of high-cost borrowing produce a redress figure in the hundreds of thousands.
What FOS can and can’t do
FOS can:
- Direct the lender to refund interest and charges, with 8% statutory interest on top.
- Direct the removal of adverse credit-file entries linked to the unaffordable lending.
- Award additional compensation for distress and inconvenience where appropriate.
- Make findings on the lender’s conduct that the lender is bound to follow if the consumer accepts.
FOS cannot:
- Hear complaints against firms that are not (and never were) FCA-authorised.
- Hear complaints against firms that have collapsed without successor authorisation.
- Award redress above the relevant award limit on a binding basis.
- Issue rulings of general application — each decision is on its individual facts, although patterns emerge.
After a FOS decision
If you accept the Ombudsman’s final decision, the lender must comply. If you reject it, you remain free to pursue the matter in court, but the FOS decision will be a relevant fact in any litigation. If the lender refuses to comply with a binding decision, FOS can refer the matter for enforcement, and consumers have the right to enforce a binding FOS decision through the courts.
Related guides
- What is unaffordable lending?
- The CONC rules on affordability — a plain-English guide
- How far back can I claim?
- How a claim works step by step
- How redress is calculated
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