CMCs under fire over exit fees

Claims management companies (CMCs) and legal firms encouraging consumers to make motor finance mis-selling claims are under fire for failing to make clear the potential financial costs if an individual withdraws their claim after the 14-day “cooling off” period.

Auto finance lenders have been inundated with claims relating to allegedly undisclosed or unfair commission payments in the past year, following a spate of decisions from the Financial Ombudsman Service (FOS) and last October’s Court of Appeal ruling.

The Financial Conduct Authority (FCA) has indicated that “hundreds of thousands” of claims are waiting decision in the courts, with cases currently on hold pending the Supreme Court decision on the issues, due this month.

Many have been driven by the activity of CMCs and law firms operating on a “no-win, no-fee” basis, who have been advertising their services very actively to encourage consumers who previously had motor finance arrangements to come forward.

However, a Financial Times report has found that claimants could be hit with significant “exit fees” by law firms and CMC) if they pull out of their case more than two weeks after joining.

Its research suggests that while the commitment that a claimant only pays a solicitor’s fees if they win the case are prominently displayed in marketing materials, references to exit fees are sometimes included only in the small print of customers’ contracts or at the bottom of a customer website.

In the case of Courmacs Legal, for example, the website states in the FAQs that “The only time you may be liable for costs is if you cancel your claim after the 14-day cooling-off period, without allowing us to continue the process.” Consumers seeking clarification need to take the further step of downloading the cancellation policy which advises “A base cancellation fee of £150 + VAT will apply. This covers the time incurred in opening your file, carrying out appropriate checks to establish the viability of your claim and the correct defendant, and commencing the claim in accordance with your instructions.” There may be more costs if “substantial work” has been carried out.

“Consumers are being lured into claims they may not understand, then hit with extortionate exit fees — potentially thousands of pounds — if they try to walk away,” she said. “Rather than promoting access to justice, it’s a business model built on confusion and coercion.”

The Solicitors Regulation Authority (SRA) is currently examining the high-volume claims market, saying it has “concerns about whether firms have appropriate protections in place to safeguard the public, whether consumers are being kept informed and being given the full and correct information about their cases, and more generally how no-win no-fee arrangements work”.

The SRA is actively reviewing some 150,000 cases with more than 60 firms, and said its findings so far “reveal issues like unexpected costs and unresolved claims.”

Meanwhile the European Centre for International Political Economy (ECIPE) has published a report The Impact of Increased Mass Litigation in the UK | which warns that the unchecked rise of mass litigation in the UK could cost the economy up to £18 billion, undermining key industrial sectors and deterring investment. It says the UK has become the most litigious jurisdiction in Europe for mass actions, with 47 competition cases filed in 2024 alone.