FCA criticises “integrity” of claims management companies

The Financial Conduct Authority (FCA) has seen “really significant misconduct” by claims management companies (CMCs) active in the motor finance compensation field, including reports of up to 12 million complaints to the Information Commissioner about abuse of data.

In evidence to the Treasury select committee FCA chief executive Nikhil Rathi said the regulator’s attempts to design a redress scheme meant “we are dealing with, on one side, lenders who perhaps do not always want to acknowledge that they had harmed consumers and have been seeking to minimise the compensation, and, on the other side, a claims management ecosystem that is largely seeking to generate as much profit as it can for that ecosystem from this situation.”

“That is everything from lead generators who secure referrals for law firms or claims management companies, the claims management companies and law firms and some of their conduct, and indeed those who fund and insure that activity.”

The FCA has received a range of allegations of poor practice, including forged signatures, people signing up without consent, as well as allegations of people who have passed away who are alleged to have signed consent forms and claims going into lenders.

Rathi argued: “Claims management companies and law firms have a role to play in securing access to justice, but seeking access to justice cannot excuse breaking the law.”

Wider powers

The FCA has formed a taskforce, in conjunction with the Solicitors Regulation Authority and Information Commissioner’s Office, to crack down on the poor handling of motor finance claims by some CMCs and law firms. 

Since January 2024, over 1200 misleading car finance claims adverts have been removed or amended by CMCs while the FCA has also secured12 voluntary requirements (VREQs) in relation to a range of motor finance claims activities over the last 12 months.

However, Rathi told the Treasury committee he would welcome further powers, citing the recommendation from the Civil Justice Council that those who fund high-volume consumer claim activity, whether that is CMCs or law firms, should at least be subject to money laundering registration with the FCA.

“I am not talking here about the broader litigation work that goes on in the UK, including commercial litigation and other things; I am talking about this narrow area of high-volume consumer claims where we have seen really significant misconduct,” Rathi said.

He also called for closer supervision of the impact of social media activity, noting that in the case of car finance claims, “The engines driving this are the funding engine, the insurance engine and the social media engine. Much of this spam activity is coming via social media. We have had that discussion about the Online Safety Act before. Facebook has been at the heart of some of this.”

Lender readiness

Rathi told MPs there is a range of readiness across the 111 lenders facing compensation, warning: “We are seeing commitment generally across the market, but not everybody has gone as far as we would like them to in terms of getting their operational processes up and running, making sure they are sorting out the agreements that fall into the different categories, and making sure that they have the right customer service support mechanisms in place if there are queries that come back from their customers when they contact them. We will be supervising that very intensively.”

Plans to implement the industry-wide FCA redress scheme are currently on hold pending a legal challenge at the Upper Tribunal from three captive lenders and a consumer group, which may not be heard before February 2027.

Rathi pointed out that as a result of this pause, consumers who are normally entitled to an answer within eight weeks are not getting any answer at all, and that includes an answer of no.

“It is important that those not entitled to redress know about that as well, because some of them may have had their expectations raised or be expecting a payment, and it might not be forthcoming. We are also moving forward with the processing of claims that are not within the scheme. High-value loans are a very small portion overall; they are 0.5% of the agreements here. They can move forward now as well,” he stated.

Rathi said the FCA is talking to lenders and some claims law firms about cases, where consumers want to move forward with the terms of the scheme and get compensation at the level of the scheme, them being able to do so in full and final settlement.

“We would envisage that lenders who wish to move forward, which is entirely optional, and to make offers to consumers in line with the scheme, can do so in full and final settlement. We would obviously be verifying that through supervision as necessary.

“Those consumers, who have been waiting many years for the money, are happy with that level of settlement, are aware that there are legal challenges going on, but notwithstanding those would like to settle, get the money and get on with their lives, can do so,” he maintained.

However, he cautioned that the FCA’s consumer duty rules mean that “It would be very unwise for any lender to offer below the level proposed in the FCA scheme.”