The Financial Conduct Authority (FCA) has launched a review of the claims management market following concerns about poor practices affecting consumers.
The regulator said it will examine issues including aggressive marketing, misleading advertising and cases where consumers are signed up without clear consent, particularly in motor finance claims.
While some claims management companies may work in favour of consumers, dealers have often complained of “ambulance chasers” looking to capitalise on the regulation of the motor finance industry.
The review will assess whether consumers receive fair value, how fee structures and incentives influence behaviour, and whether the end-to-end customer journey delivers good outcomes.
It will also consider differences across regulatory regimes and whether firms are operating with the correct permissions.
The FCA said it will work with partners including the Solicitors Regulation Authority (SRA), using supervisory and enforcement powers where needed, and may recommend legislative changes if required.
Consumers are being let down
Alison Walters, director of consumer finance at the FCA, said claims management companies and law firms can play a role in helping consumers secure compensation but standards are inconsistent.
She 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.”
She said the review will assess how the market is functioning and added: “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 at the SRA, said the issues require coordinated action across regulators.
She 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.”
She said the SRA will work closely with the FCA on the review, describing it as a cross sector issue requiring joined up solutions.
A positive step, but reflects wider structural issues
Responding to the announcement, Shanika Amarasekara, chief executive of the Finance & Leasing Association (FLA), said the review is a positive step but reflects wider structural issues in the market.
She said the credit industry has faced ongoing challenges from claims management firms monetising complaints processes, particularly in motor finance. She said: “For years, the entire credit industry, including motor finance lenders, has endured claims management companies monetising the complaints process.”
She highlighted cases of multiple representation, adding: “In the motor finance commissions redress scheme, we’re seeing cases of multiple representation coming to light where up to 21 claims management or claimant legal firms are vying for a share of any redress paid out on an individual complaint.”
Amarasekara said closer coordination between regulators will be critical, particularly involving the Solicitors Regulation Authority, and pointed to the existing joint taskforce with the FCA and other bodies.
She said uncertainty in the regulatory framework is contributing to the scale of claims activity in the UK compared with other markets, with ongoing reform of the Financial Ombudsman Service expected to address some of these issues.