Guide
Handle consumer credit complaints and the Financial Ombudsman
How to set up internal complaints handling for consumer credit, meet the 8-week resolution deadline, issue final response letters, and prepare for Financial Ombudsman Service (FOS) referrals. Covers FOS jurisdiction, award limits, case fees, common credit complaint categories, and root cause analysis requirements.
Every FCA-authorised consumer credit firm must have a complaints handling procedure that meets the requirements of the FCA's Dispute Resolution sourcebook (DISP). If you cannot resolve a complaint internally, your customer may take it to the Financial Ombudsman Service (FOS), which can make binding awards of up to GBP 430,000.
Complaints are not just a cost. They are a compliance obligation and, handled well, a source of intelligence about where your products and processes are causing customer harm. The FCA expects firms to learn from complaints, not just resolve them.
Setting up your complaints procedure
Under DISP 1.3, you must have written procedures for handling complaints. These must be available to customers and your staff.
The Financial Ombudsman Service
If the customer is dissatisfied with your final response (or you fail to respond within 8 weeks), they may refer the complaint to FOS. Understanding how FOS works helps you prepare and manage the process.
What FOS looks at in credit complaints
FOS decides complaints on the basis of what is "fair and reasonable in all the circumstances" (FSMA 2000, s.228). For consumer credit complaints, the most common issues are:
Unaffordable lending: The customer argues they should not have been given the credit because they could not afford the repayments. FOS examines the affordability assessment you carried out at the point of lending. If the assessment was inadequate or you lent despite red flags (such as existing debt problems), FOS will typically order a refund of all interest and charges paid, plus 8% simple interest, and removal of adverse credit reference data.
Unfair charges: Excessive default fees, unexpected charges, or charges not clearly disclosed in the agreement. FOS assesses whether the charges were transparent and fair.
Debt collection conduct: Aggressive or harassing collection practices, failure to show forbearance, or contacting customers at unreasonable times. FOS considers both CONC 7 requirements and general fairness.
Commission non-disclosure: Following the Supreme Court decision in Johnson v FirstRand Bank Ltd [2024], failure to disclose commission received from a lender by a broker is a growing area of FOS complaints.
Hire purchase disputes: Quality of goods, rejection rights, and the interaction between the Consumer Rights Act 2015 and section 75 CCA 1974.
Preparing for an FOS investigation
When FOS accepts a complaint, it will request your case file. How you prepare this file significantly affects the outcome.
What to include:
- Complaint file: The original complaint, your acknowledgement, investigation notes, and final response letter
- Application documents: The customer's application, affordability assessment, credit reference data obtained, and lending decision rationale
- Agreement: The executed credit agreement and any variations
- Account history: Full transaction and payment history, including any arrears or default activity
- Correspondence: All communications with the customer, including call recordings if relevant
- Your firm's position: A clear written explanation of why you believe the complaint should not be upheld (if that is your position)
Common mistakes:
- Failing to provide the affordability assessment (FOS will assume one was not done)
- Providing incomplete account records
- Not responding to FOS within their deadlines (FOS may decide based on available information)
- Arguing technical points of law when the question is fairness
Case fees and financial impact
FOS case fees: The first 25 cases referred to FOS in each financial year are free. From the 26th case onwards, each case costs GBP 750, regardless of the outcome. This fee is payable when FOS opens the case, not when it is decided.
Award limits: FOS can award up to GBP 430,000 in compensation for complaints about acts or omissions on or after 1 April 2024. This covers financial loss, distress and inconvenience, and consequential losses.
Binding nature: If the customer accepts the FOS decision, it is binding on your firm. You must comply. If the customer rejects it, they retain the right to take court action instead.
Time limits for complaints: A customer can refer a complaint to FOS up to 6 years from the event complained about, or 3 years from when they became aware (or ought reasonably to have become aware) they had cause to complain. For affordability complaints about lending decisions made years ago, this means historic lending is potentially within scope.
Root cause analysis
The FCA expects firms to carry out root cause analysis of complaints, not merely resolve them individually. Under DISP 1.3.3R, you must identify and remedy any recurring or systemic problems.
What root cause analysis looks like:
- Categorise: Group complaints by product, issue type, and outcome to identify patterns
- Investigate root causes: If multiple customers complain about the same issue (such as unclear terms, unaffordable lending, or aggressive collection), investigate the underlying process or policy failure
- Remediate: Fix the root cause and consider whether other affected customers (who have not complained) should also receive redress
- Report: Include root cause analysis findings in your annual Consumer Duty board report and in your FCA complaints returns
The FCA views firms that resolve complaints reactively without addressing root causes as failing to meet their regulatory obligations. Persistent complaint themes may trigger supervisory intervention.
Next steps:
- Review your written complaints procedure against DISP 1.3 requirements
- Ensure all customer-facing staff can identify and log complaints correctly
- Audit a sample of recent complaints for timeliness (8-week deadline) and quality of investigation
- Set up root cause analysis reporting and feed findings into your annual Consumer Duty board report
- Review your FOS case file preparation process to ensure completeness