Administrative Court Dismisses Judicial Review Challenge Of FOS "mortgage Prisoner" Decision

• Published date: 07 October 2022
• Subject Matter: Finance and Banking, Charges, Mortgages, Indemnities, Financial Services
• Law Firm: Herbert Smith Freehills
• Author: Ms Ceri Morgan and Ariel Wiebe

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...