The Financial Conduct Authority is launching a major review of the claims management market, triggered by concerns over aggressive marketing and misleading advertising as well as fears of “feeding frenzy” over motor finance compensation.
The review, which will cover both claims management companies (CMCs) and law firms, will probe the root causes of poor practices across the market, including unfair exit fees.
Other concerns include consumers 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 ads – or by multiple representatives, potentially causing confusion and delaying compensation.
While the approach to motor finance claims by some CMCs and law firms has put these issues into sharper focus, and has already seen the establishment of a new regulatory taskforce, the FCA is also concerned about the handling of other claims, such as housing disrepair. Last year, it set out areas where firms were not meeting its expectations, but poor behaviours are continuing.
As well as advertising and marketing practices, the FCA will working in close collaboration with the Solicitors Regulation Authority (SRA) and other regulatory partners, to examine a number of other areas of concern.
These include whether consumers receive fair value, such as competition on price and quality, and whether existing price caps are still fit for purpose, especially where free-to-use redress mechanisms exist.
It will also probe financial incentives, including fee structures, funding and insurance arrangements, and whether these create conflicts of interest and/or lead to poor conduct and outcomes.
In addition, the review will look at practices of firms it regulates, including lead generators, as well as those authorised by others, working with its regulatory partners.
The FCA has vowed to take “robust” regulatory and enforcement action against companies which do not cooperate with the review.
If the review concludes that there should be new legal powers, the FCA will make recommendations to Government, or relevant bodies, including whether CMCs and law firms should be subject to stronger compensation mechanisms if they cause harm.
The FCA has already removed or amended 800 misleading ads from companies operating in the sector, in excess of 28,000 consumers have been able to exit contracts free of charge, and three CMCs have been forced reduced their unreasonable fees. Formal investigations are also under way.
FCA director of consumer finance Alison Walters said: “CMCs and law firms can help consumers secure compensation they are owed. But too often consumers are being let down, eroding trust in firms that should be supporting them and damaging the economy. This review will give us a clear picture of how the market is working and galvanise the further actions that are needed.”
SRA executive director, strategy, innovation and external affairs Aileen Armstrong said: “When they work well, claims management services can benefit consumers. But we are concerned about poor practices and behaviours that are not looking after consumers’ best interest. We will work closely with the FCA on this important review. This is a cross-sectoral problem that requires joined-up solutions.”
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