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Claims management companies that seek compensation for consumers in return for a fee could face tougher rules after the UK regulator launched a review of a sector that has surged in prominence during the car finance mis-selling scandal.
The Financial Conduct Authority said on Wednesday it would work with the Solicitors Regulation Authority to probe “the root causes of poor practices across the market, like aggressive marketing, misleading advertising and unfair exit fees”.
The review will examine whether existing caps on charges are working, whether fee structures are appropriate and if there should be “stronger compensation mechanisms” if consumers suffer harm from CMCs. The FCA said it would call on the government to legislate if needed.
The move highlights how the watchdog is intensifying its efforts to stop CMCs and “no-win, no-fee” law firms from making allegedly misleading claims about car finance compensation.
It comes just over a month after the FCA launched a £9.1bn industry-wide redress scheme aimed at consumers who were allegedly mis-sold car finance.
Many CMCs and law firms continue to advertise aggressively to pursue car finance claims in return for a share of up to 30 per cent of any payout, even though the FCA has told consumers they can use the redress scheme for free.
Some law firms are seeking to bring omnibus court claims on behalf of thousands of motorists and one consumer group has launched a legal challenge against the FCA’s redress scheme claiming it is too generous to lenders.
The watchdog, which has opened enforcement investigations into some CMCs and imposed restrictions on others, said it decided to act over “concerns that consumers are being failed by some claims management companies and law firms”.
It said consumers were being “signed up without their consent — without clear, upfront explanations of the implications of signing up or ticking a box, for example on social media adverts — or by multiple representatives, potentially causing confusion and delaying compensation”.
It added that while the actions of some CMCs and law firms over car finance claims had “put these issues into sharper focus”, it had concerns about how claims were being handled in other areas such as housing disrepair.
The review will examine whether different approaches across various regulators are creating issues and if some CMCs are “failing to secure the appropriate permissions”. It will also examine the role of lead generators, which identify consumers for CMCs and law firms in return for a fee.
“This review will give us a clear picture of how the market is working and galvanise the further actions that are needed,” said Alison Walters, FCA director of consumer finance.
Aileen Armstrong, SRA executive director for strategy, innovation and external affairs, said: “When they work well, claims management services can benefit consumers. But we are concerned about poor practices and behaviours.”
The FCA has already taken action against a number of CMCs. Last month, it forced a CMC to remove advertising featuring consumer champion Martin Lewis and the FCA logo without permission and making misleading claims about average car finance refunds.
It has removed or amended 800 misleading CMC adverts and helped 28,000 customers exit contracts for free, while three firms reduced their fees. The SRA has closed seven law firms in this area and has 109 open investigations into others.
