The Financial Conduct Authority (FCA) is launching a review of the claims management market amid concerns that consumers are being failed by some claims management companies (CMCs) and law firms.
The review is intended to “look at the root causes of poor practices”, such as aggressive marketing, misleading advertising and unfair exit fees.
Other concerns under scrutiny include consumers being signed up without their consent, or by multiple representatives, potentially causing confusion and delaying compensation.
Further information on the review is set to be published by the FCA in mid-May. After the review, the watchdog will make recommendations to Government and other bodies over whether CMCs and law firms should be subject to stronger compensation mechanisms if they cause harm.
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.”
The FCA says it will work with the Solicitors Regulation Authority (SRA) and other regulatory partners 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.
It will also probe financial incentives, including fee structures, funding and insurance arrangements, and whether these create conflicts of interest and/or lead to poor conduct and outcomes.
The report will also explore whether the full end-to-end consumer journey, if different approaches across different regulatory regimes affect firm behaviour, and at practices inside FCA regulated firms.
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.”
Phil Smith, head of redress at independent financial services consultancy Broadstone, said: “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.”
