FCA to review claims management market

The Financial Conduct Authority (FCA) is launching a review of the claims management market, following concerns that consumers are being failed by some claims management companies (CMCs) and law firms, several of whom have been very active in the motor finance market.

The regulator says its review will look at the root causes of poor practices across the market, like aggressive marketing, misleading advertising and 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 adverts – or by multiple representatives, potentially causing confusion and delaying compensation.

The FCA acknowledged that the approach to motor finance claims by some CMCs and law firms has put these issues into sharper focus but says it is also concerned about the handling of other claims, such as housing disrepair.

Last year, the FCA set out areas where firms were not meeting expectations (PDF), but reports that it and other regulators continue to see poor behaviours.

Alison Walters, FCA director of consumer finance, 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.”

Review topics

The FCA will be collaborating with the Solicitors Regulation Authority (SRA) and other regulatory partners to examine:

Whether consumers receive fair value, including competition on price and quality, and whether existing price caps are still fit for purpose, especially where free-to-use redress mechanisms exist.
Financial incentives, including fee structures, funding and insurance arrangements, and whether these create conflicts of interest and/or lead to poor conduct and outcomes.
Whether the full end-to-end consumer journey, including lead generation, marketing and advertising, delivers good consumer outcomes.
Whether different approaches across different regulatory regimes affects firm behaviour and if some firms are failing to secure the appropriate permissions.

The FCA says it will expect “full, prompt and open cooperation from all parties” and will be examining the practices of firms it regulates, including lead generators, as well as those authorised by others.

Where the FCA believes legislative change is needed, it 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.

More information on the review is expected by mid-May, and in the meantime the FCA says it will continue to tackle poor handling of motor finance claims through the joint regulatory taskforce . This includes action against misleading advertising and sign-up processes, meritless claims and multiple representation. The taskforce will also look at firms’ financial and operational resilience including, but not limited to, the quality and integrity of accounting and audit practices.

The FCA has removed or amended 800 misleading adverts, in excess of 28,000 consumers have been able to exit contracts free of charge, and three CMCs reduced their unreasonable fees protecting over 500,000 consumers. Formal investigations are also under way, with one announced by the FCA.