UK regulators have shut down some claims companies and ordered others to stop taking on clients as they step up a crackdown on firms making misleading statements about car finance compensation.
Four regulators have joined forces to tackle a wave of bad practices among claims management companies (CMCs) and consumer law firms that are attempting to grab a slice of the billions of pounds in compensation set to be paid to victims of the car finance commission scandal.
On Tuesday the Financial Conduct Authority is due to announce more details of a planned official compensation scheme for people who have lost out, which should mean payouts begin next year.
Millions of people are in line for compensation after a supreme court ruling in August. This largely overturned an earlier ruling that could have led to compensation payouts of up to £44bn but will still result in a redress scheme covering some car loans dating back to 2007 that could mean up to £18bn is paid out.
CMCs and law firms have been touting for business for some time and appear to be ramping up their efforts to encourage people who may have lost out to sign up.
But the FCA and the Solicitors Regulation Authority (SRA) have been concerned that some firms are not telling consumers about free alternatives, are making bold and sometimes misleading claims about payouts and are charging fees worth up to 30% of any compensation.
They have now joined forces with the Information Commissioner’s Office and the Advertising Standards Authority on a crackdown. Areas of concern include misleading advertising, inadequate information and excessive fees.
The SRA said it was investigating 76 law firms and had closed five firms “to protect the public”.
Meanwhile, two FCA-regulated CMCs have agreed to change their policies on the exit fees they were charging people who signed up and later tried to leave.
Two other firms “have agreed not to take on clients or to advertise until they are able to show the FCA they comply with FCA rules”, said the regulators.
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The FCA said its increased monitoring had led to more than 740 misleading adverts by CMCs that it polices being changed or pulled since January 2024. “Concerns include unrealistic claims about success rates and the value of potential compensation,” the regulators said.
The FCA recently launched a £1m advertising campaign to make people aware that they do not need to use a CMC or law firm to get compensation and that they stand to lose a chunk of any money they are owed if they choose to do so.
Paul Philip, the chief executive of the SRA, said: “We are using all the levers at our disposal to protect consumers, identify poor practices and hold law firms to account.”
