The fairness test

Two questions, not one

Where a complaint concerns a fee, an interest charge or an enforcement step, the first question is usually whether the mortgage terms allowed it. That question is often answered in the business's favour. Published decisions show that the enquiry does not stop there: the Ombudsman then considers separately whether the customer was treated fairly, which is the test set by the dispute resolution rules.

This is why a decision can record that a charge was contractually permitted and still order it to be refunded, and equally why a decision can record that a borrower found an outcome unwelcome and still not uphold the complaint. Both patterns appear in the records below.

What this means in practice

• A fee being listed in a published tariff answers the contractual question, not the fairness question.
• Whether a step was fair is assessed on what the business knew at the time, not with hindsight.
• Where a business is entitled to do something, decisions have considered whether it was proportionate to do it at that point, and what alternatives had been explored.
• An Ombudsman decision determines the individual complaint. It is not a judicial precedent binding on other cases.

Rules and guidance behind the test

• MCOB 13 – arrears, payment shortfalls and repossessions — FCA rules on dealing fairly with customers in payment difficulty, including what charges may be applied.
• DISP – the FCA's dispute resolution rules — How complaints must be handled and the basis on which the Ombudsman determines them: what is, in the Ombudsman's opinion, fair and reasonable in all the circumstances.
• Pre-Action Protocol for Possession Claims based on Mortgage Arrears — What a lender is expected to do before starting possession proceedings on a residential property.
• FCA Consumer Duty — Applies to closed mortgage books from 31 July 2024.
• Financial Ombudsman Service – mortgage complaints guidance — The Ombudsman's own published guidance on the mortgage complaints it sees.