The City regulator has launched a review of claims management companies amid concerns that firms are misleading victims of financial scandals, such as car finance, about their compensation.
The Financial Conduct Authority (FCA) said some companies were pursuing “aggressive marketing, misleading advertising and unfair exit fees”.
Some consumers were being signed up without their permission or by multiple companies, the FCA said, which could delay any compensation owed.
Claims management companies (CMCs) have targeted victims of the car finance scandal, where they can charge fees worth up to 33% of the final payouts. The FCA and lenders have advised consumers not to use these firms as the regulator’s scheme is free to use.
Millions of people are expected to receive payouts this year over the motor finance scandal, in which drivers were overcharged for loans as a result of commission payments between lenders and car dealers between 2007 and 2024.
The FCA said it was concerned about the handling of other claims by CMCs, such as over housing disrepair.
Alison Walters, the 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, a director at the Solicitors Regulation Authority, said that while claims management services could benefit consumers, it was “concerned about poor practices and behaviours that are not looking after consumers’ best interest”.
In March, the regulators, alongside the Advertising Standards Authority and the Information Commissioner’s Office, set up a joint taskforce to deal with misleading adverts and sign-up processes, and to reduce the risk of consumers seeking multiple avenues of representation.
The FCA said so far it had removed or amended 800 misleading adverts and that more than 28,000 consumers had been able to exit contracts free of charge. Three CMCs agreed to reduce their fees.
Meanwhile, the SRA, which regulates about 9,000 law firms in England and Wales, has opened more than 100 investigations relating to 76 firms that manage consumer claims.
Last month, the FCA banned an advert that used edited and unauthorised clips of the consumer rights expert Martin Lewis. The regulator said it was concerned that some of the firm’s ads stated consumers would receive an average of £1,846 in motor finance compensation, with no explanation of how it reached that figure.
The UK’s claims management industry grew rapidly after a judicial review in 2011 that set mass payouts over the payment protection insurance scandal in motion.
CMCs made £3.8bn to £5bn from PPI claims between 2011 and 2015, according to estimates from the National Audit Office. It prompted criticism from high street banks, which said some CMCs had filed low-quality claims.
In 2018, the FCA set a 20% cap on commissions for PPI claims, months before taking over the regulation of the sector in the spring of 2019. By 2022, it had capped commissions for non-PPI claims at 30%.
