Handle consumer credit complaints and the Financial Ombudsman

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 up to a compensation limit that is raised in line with CPI each April.

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 unhappy with your final response, or you do not send one in time, they can refer the complaint to FOS.

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:

In unaffordable lending complaints, 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 complaints are about excessive default fees, unexpected charges, or charges not clearly disclosed in the agreement. FOS assesses whether the charges were transparent and fair.

Debt collection complaints are about aggressive or harassing collection, failure to show forbearance, or contacting customers at unreasonable times. FOS considers both CONC 7 requirements and general fairness.

On commission non-disclosure, in Johnson v FirstRand Bank Ltd [2025] UKSC 33 (1 August 2025), the Supreme Court significantly narrowed lender and broker liability for commission non-disclosure, finding that car dealers acting as credit brokers did not generally owe a fiduciary duty to customers and rejecting most of the Court of Appeal's pro-consumer findings - upholding only a narrow unfair-relationship claim on the specific facts of one of the three joined appeals. Firms should still expect FOS complaints in this area, but since August 2025 the legal exposure has been considerably narrower than the Court of Appeal's 2024 judgment had suggested.

Hire purchase disputes are about the 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.

Include:

• the original complaint, your acknowledgement, investigation notes and final response letter
• the customer's application, your affordability assessment, the credit reference data you obtained and why you decided to lend
• the signed credit agreement and any variations
• the full transaction and payment history, including any arrears or default activity
• all communications with the customer, including call recordings if relevant
• a clear written explanation of why you believe the complaint should not be upheld, if that is your position

Common mistakes are:

• 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 charges your firm a case fee for each complaint it handles once you have used up your yearly allowance of free cases. The fee and the allowance are set each financial year. The fee is payable when FOS opens the case, not when it is decided.

The award limit for acts or omissions on or after 1 April 2019 is higher than for earlier ones. It covers financial loss, distress and inconvenience, and consequential losses.

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.

Because customers can complain about events up to 6 years old, or later if they only recently became aware of the problem, affordability complaints can reach lending decisions made years ago.

Enforcement and redress

Complaints can lead to FCA action, an ombudsman award or case fees. None is a criminal penalty.

FCA sanctions

The complaints-handling rules in DISP are FCA rules. If you breach them, the FCA can publicly censure your firm (section 205 of the Financial Services and Markets Act 2000), impose a financial penalty of whatever amount it considers appropriate (section 206) or suspend or restrict your permission for up to 12 months (section 206A).

Ombudsman awards

The ombudsman decides what is fair and reasonable in all the circumstances. If the customer accepts the final decision, it is binding on you and the customer, and final (section 228). The decision can include a money award, which may carry interest, and a direction to take steps to put things right (section 229). The customer can enforce either through the courts.

Money awards are capped. For complaints referred on or after 1 April 2026, the limit is £455,000 where the act or omission happened on or after 1 April 2019, and £205,000 where it happened earlier. If fair compensation is higher, the ombudsman can recommend, but not require, that you pay the balance.

Case fees

Case fees are not a sanction. They help fund the ombudsman service, and once your annual case fee allowance is used up you pay them whatever the outcome. The ombudsman consults publicly on its fees each year.

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.

To carry out root cause analysis:

• Group complaints by product, issue type, and outcome to identify patterns
• If multiple customers complain about the same issue (such as unclear terms, unaffordable lending, or aggressive collection), investigate the underlying process or policy failure
• Fix the root cause and consider whether other affected customers (who have not complained) should also receive redress
• 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:

1. Review your written complaints procedure against DISP 1.3 requirements
2. Ensure all customer-facing staff can identify and log complaints correctly
3. Audit a sample of recent complaints for timeliness (8-week deadline) and quality of investigation
4. Set up root cause analysis reporting and feed findings into your annual Consumer Duty board report
5. Review your FOS case file preparation process to ensure completeness