The Financial Conduct Authority (FCA) has warned it will push for regulatory change where needed as it launches a review of the claims management market.
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 highlighted by the regulator 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, the regulator said it is also concerned about the handling of other claims, such as housing disrepair. Last year, it set out areas where firms were not meeting its expectations, but added it and other regulators continue to see poor behaviours.
Working in close collaboration with the Solicitors Regulation Authority (SRA) and other regulatory partners, the FCA said it will use its 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.
The regulator will look at practices of firms it regulates, including lead generators, as well as those authorised by others – working with its regulatory partners.
It added it expects full, prompt and open co-operation from all parties it engages in the review, and with its regulatory and enforcement partners, it will take robust action if this is not forthcoming.
But the FCA also added where it believes legislative change is needed, it will make recommendations to the 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.”
The regulator added it will publish further information on the review by mid-May.
