FCA launches review into claims management practices

The Financial Conduct Authority (FCA) has announced that it will launch an investigation into claims management practices.

The review follows 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, it is also concerned about the handling of other claims, such as housing disrepair.

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, 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 interests.

“We will work closely with the FCA on this important review. This is a cross-sectoral problem that requires joined-up solutions.”

–Shanika Amarasekara, Chief Executive of the Finance & Leasing Association (FLA), said “This is a welcome intervention by the regulator that will create better outcomes for consumers.

“For years, the entire credit industry, including motor finance lenders, has endured claims management companies monetising the complaints process. For example, 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. Problems are particularly prevalent among claimant law firms, so it is imperative that broader regulators such as the Solicitors Regulation Authority work closely with the FCA.

“We can see that regulators are moving in that direction since the Taskforce was set up by the Financial Conduct Authority, the Solicitors Regulation Authority, the information Commissioner’s Office and the Advertising Standards Authority, but we have yet to see how this Taskforce will deliver good outcomes for consumers.

“It is notable that our international neighbours with comparable markets do not have claims management activity, primarily because there is less regulatory uncertainty in those markets to give claims firms a foothold.

“Here in the UK, the Financial Ombudsman Service (FOS) adjudicates complaints in a manner which creates uncertainty in the regulatory regime, and business opportunities for the claims management industry. This issue is currently being considered through FOS reform, and we will continue to engage with Government on it.

“While it’s good to see the FCA finally addressing the atrocious conduct in the claims sector, the existence of claims firms, and extent of their activity, is symptomatic of an underlying regulatory problem.”