Ombudsman or Small Claims Court: Choosing How to Pursue a Dispute

If a financial firm rejects your complaint, you have two main routes: the Financial Ombudsman Service, which is free for consumers, or the small claims court, which can order payment but charges fees and follows formal rules. The ombudsman decides complaints by reference to what is fair and reasonable in all the circumstances, not just what the law says¹. A court decides on the law.

The ombudsman is free and informal. It can require a firm to hand over documents and information, and it can order a firm to put things right, including paying compensation. But it cannot hear every dispute, and it will not usually look into a problem a court has already looked into². If you accept its final decision, a court will not look into the same issues².

The small claims court is a formal legal process. It can order payment, but you pay a fee to bring a claim, and if you lose you may be ordered to pay the other side's costs. The ombudsman route costs nothing and is designed to be quicker and less formal. Which fits your dispute depends on what you are owed, what the firm has done, and whether the ombudsman has the power to look at it.

Ombudsman or small claims court: the main differences

The two routes work in different ways. The ombudsman is an alternative dispute resolution scheme. It is free, it is not a court, and it is more relaxed and friendly than a court⁸. It decides complaints by reference to what is fair and reasonable in all the circumstances of the case¹. That means it can look beyond the strict legal position and consider what a firm ought to have done.

A court decides on the law. It can order a firm to pay, but the process is formal, and you pay a fee to bring a claim. The ombudsman has similar powers to a court of law in some respects, including the power to require a party to provide information or produce documents⁹. But it is not a court, and it does not follow court procedure.

The ombudsman will not usually look into a problem that a court has already looked into². And if you accept the ombudsman's final decision, a court will not look into the same issues². So the two routes are largely alternatives, not steps you take one after the other.

One practical difference is cost. The ombudsman is free for consumers³. Court involves fees, and the losing side may be ordered to pay the other side's costs. Another is speed and formality. The ombudsman usually sorts things out over the phone and in writing, and will not usually ask you to discuss your complaint face to face¹⁰.

A third difference is what each can consider. The ombudsman can look at complaints about a wide range of financial products, from current accounts and mortgages to insurance, investments and credit. It can also look at complaints made by small and medium-sized enterprises about financial firms, and complaints made by customers of claims management companies¹¹. A court can hear any dispute, but the small claims track is designed for smaller sums.

What the Financial Ombudsman can look at, including buy now pay later

The ombudsman covers most regulated financial products and services. It sees complaints about unaffordable lending across a range of credit products, from car finance to payday lending¹². It can look at complaints about payday loans, debt collection, home credit and catalogue shopping, and other types of lending and borrowing like mortgages¹³. It can look at complaints about financial difficulties affecting your ability to repay your mortgage, including mortgage arrears and charges, not being able to change or move your mortgage or take a payment holiday, and repossession before or after it has happened¹⁴.

It can look at complaints about insurance, including home insurance, motor insurance, travel insurance and building warranties¹⁵. It can look at complaints about investments, including savings endowments and unregulated collective investment schemes¹⁶. It can look at complaints about banking and payments, including sending money abroad, regular payments, and scams where you were tricked into making a payment¹⁷. It can look at complaints about gambling-related harm¹⁸.

Buy now pay later is now covered. From 15 July 2026, the ombudsman can look at complaints about buy now pay later agreements taken out on or after that date⁶. Consumers have access to the ombudsman for redress, alongside a wider range of protections¹⁹. If you cannot resolve things with your provider, you can bring an eligible complaint to the ombudsman.

There are limits. The ombudsman cannot look into complaints about policy pricing, call-outs, roadside repairs and vehicle recovery if you are with AA, RAC or some other smaller providers²⁰. It can only look at complaints after certain conditions are met in some cases, such as building warranty complaints where the insurer has written a resolution or conciliation report and the builder has failed to complete works by a deadline or is insolvent²¹.

Complaining to the firm first

You must complain to the firm before you go to the ombudsman. The ombudsman only looks at complaints the business has had an opportunity to deal with first²². If you are not happy with the firm's response, or it does not reply in time, you can bring your complaint to the ombudsman²³.

The firm must get back to you within 15 days, either with a response to your complaint or to explain why it cannot yet give you one⁵. If it does not send you a final response letter within eight weeks, or you are unhappy with its response, you can bring the complaint to the ombudsman⁵. You use the ombudsman's complaint form to do this²⁴.

If you do not receive a final letter within eight weeks and you do not want to give the bank more time, you can contact the ombudsman for a complaints form²⁵. The same eight-week rule applies to pensions complaints: if you are unhappy with the reply or the scheme does not respond within eight weeks, you can submit a complaint to the Pensions Ombudsman²⁶.

The ombudsman can consider complaints where the firm has not itself investigated the complaint, but only if both the firm and the consumer consent⁴. This is unusual. In most cases, you need to give the firm the chance to put things right first.

How an ombudsman complaint works

Once you bring a complaint, the ombudsman investigates. It can require a party to provide specified information or produce specified documents where it considers this necessary for the determination of the complaint⁹. This gives it powers to get to the bottom of what happened, even if the firm is not forthcoming.

The ombudsman decides the complaint by reference to what is fair and reasonable in all the circumstances of the case¹. It considers relevant laws and regulations, guidance, standards and codes of practice in place at the time of the event, including the Consumer Duty where it applies²⁷. It also considers whether the business was aware or ought to have been aware the customer was vulnerable, and what support was offered or put in place and whether it was reviewed regularly²⁷.

If the ombudsman upholds a complaint, it can order the firm to put things right. In an underinsurance case, for example, it will usually ask the insurer to pay the claim in full, and may also consider interest or compensation for distress and inconvenience²⁸. It can order a firm to pay compensation, and it can make other directions.

The ombudsman aims to set up cases within seven days, give answers within 90 days, and resolve 90% of cases within six months²⁹. It deals with complaints confidentially, over the phone or in writing³⁰. You can still take your complaint to court if you do not want to accept the ombudsman's decision, but the ombudsman will not be involved in any court action³¹.

If you do not accept the ombudsman's final decision, the complaint cannot be taken further through the ombudsman, but you can still go to court³². If you disagree with the answer you get from one ombudsman, it is very unlikely you can take the same complaint to another ombudsman, though you may still be able to go to court³⁰.

When the ombudsman can dismiss a complaint

The ombudsman can dismiss a complaint without considering its merits in certain circumstances. From 1 October 2026, formal rule changes to the dismissal framework and the amended fair and reasonable test took effect⁷. The ombudsman reduced the grounds on which it may dismiss a complaint without considering its merits to seven, with only one ground new⁴.

The ombudsman can also dismiss a complaint if it considers the matter is better suited to court. In the 2024/25 financial year, fewer than 300 complaints were dismissed on this basis⁷. This is a small proportion of the complaints the ombudsman receives.

The ombudsman cannot consider complaints that are already being looked at, or have already been decided, by a court or employment tribunal³³. The same applies if another ombudsman has already considered the complaint³³. This is why you generally choose one route and stick to it.

If you do not accept the ombudsman's decision by the specified date, you are treated as having rejected it³⁴. The ombudsman can consider complaints outside the time limits in certain circumstances, such as where the failure to comply was as a result of exceptional circumstances, or where the firm has not objected to the ombudsman considering the complaint³⁵.

Choosing the route for your dispute

The right route depends on your circumstances. The ombudsman is free, informal, and can look at what is fair and reasonable, not just the law. It is usually the better route for smaller disputes, for complaints about financial products and services, and where you want a decision without the cost and formality of court.

Court may be the better route where the ombudsman cannot help, where the amount is large, or where you need a legally enforceable decision. But court involves fees, and the losing side may be ordered to pay the other side's costs. The ombudsman route costs nothing.

If your dispute is with a firm that is not covered by the ombudsman, you may need to use court or another ombudsman scheme. For example, if your landlord is a local authority, you may raise concerns with the Local Government and Social Care Ombudsman, or the Housing Ombudsman if your landlord is a housing association³⁶. Different ombudsman schemes cover different sectors.

Consumers may choose to complain to the firm and seek redress from it, and refer the complaint to the Financial Ombudsman Service if the firm does not satisfy the complaint and it is appropriate³⁷. The ombudsman scheme exists so that certain disputes may be resolved quickly and with minimum formality by an independent person³⁴.

If you are unsure which route fits, free and impartial help is available. MoneyHelper offers guidance on financial complaints, and the ombudsman's own website explains what it can and cannot look at. The ombudsman service is free for consumers³.