The 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.
The 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.
While the approach to motor finance claims by some CMCs and law firms has put these issues into sharper focus, the FCA says it is also concerned about the handling of other claims, such as housing disrepair.
Last year, the regulator set out areas where firms were not meeting its expectations, but noted that it continues "to see poor behaviours".
Working in collaboration with the Solicitors Regulation Authority (SRA) and other regulatory partners, the FCA will use its review and supervisory and enforcement powers 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.
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.
The FCA will publish further information on the review by mid-May.
Alison Walters, director of consumer finance at the FCA, 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.”
Aileen Armstrong, executive director, strategy, innovation and external affairs at the SRA, added: “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.”
