Some may say they provide a useful service for those who cannot navigate various online portals, or claim directly from banks, insurers or public sector bodies. But others feel more regulation is needed on fees, percentages of damages, loans sold upfront at the point of starting a claim etc. Here’s the word from the FCA;
We are 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, we are also concerned about the handling of other claims, such as housing disrepair. Last year, we set out areas where firms were not meeting our expectations, but we and other regulators continue to see poor behaviours.
Working in close collaboration with the Solicitors Regulation Authority (SRA) and other regulatory partners, we will use our review and supervisory and enforcement powers to rigorously 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.
We will look at practices of firms we regulate, including lead generators, as well as those authorised by others – working with our regulatory partners.
We expect full, prompt and open cooperation from all parties we engage in the review. We, with our regulatory and enforcement partners, will take robust action if this is not forthcoming.
Where we believe legislative change is needed, we 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.
Alison Walters, 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.”
Aileen Armstrong, SRA executive director, strategy, innovation and external affairs, 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.
“We will work closely with the FCA on this important review. This is a cross-sectoral problem that requires joined-up solutions.”
We will publish further information on the review by mid-May.
We will continue to intervene where we see harm, including through the joint regulatory taskforce set up to tackle the poor handling of motor finance claims. 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.
BROADSTONE COMMENT
Phil Smith, Head of Redress at leading independent financial services consultancy Broadstone, commented:
“Claims management companies and law firms can play an important role in helping consumers access redress, particularly where complaints processes are complex or individuals feel unable to navigate them alone. However, the FCA’s probe reflects growing concern that parts of the market have become overly aggressive, with poor practices undermining consumer trust by creating unnecessary friction and cost in the redress process.
“The regulator’s focus on marketing practices, lead generation and fee structures is particularly important given the increasing volume of claims activity in areas such as motor finance. Consumers should fully understand what they are signing up to, what fees may apply and whether free-to-access routes such as the Financial Ombudsman Service are available before entering into agreements.
“There is also a broader issue around the quality and consistency of claims being submitted. High volumes of poorly evidenced or duplicate claims can create operational strain for firms, slow down complaint handling and ultimately delay outcomes for consumers with legitimate cases. Greater scrutiny of incentives and conduct across the claims ecosystem should help improve standards and support better outcomes for all parties.
“The FCA’s willingness to work alongside other regulatory partners including the Solicitors Regulation Authority and consider whether existing rules and compensation mechanisms remain fit for purpose demonstrates the seriousness with which regulators are approaching these concerns. The challenge now will be ensuring that any reforms strike the right balance between maintaining access to redress and preventing practices that risk harming consumers or reducing confidence in the system.”
https://www.fca.org.uk/news/statements/fca-review-claims-management-practices
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