FCA review will assess whether business models and fees are undermining fair consumer outcomes
The Financial Conduct Authority (FCA) is launching a review of the claims management market ‘following concerns that consumers are being failed by some claims management companies (CMCs) and law firms’.
According to the regulator, 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.”
In a statement, the regulator confirmed that the review will assess how claims management companies (CMCs) and law firms operate across the sector, particularly in the context of large-scale redress schemes. It said the exercise is intended to provide a clearer understanding of whether firms are delivering fair outcomes for consumers.
The FCA said the review will 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 made clear that it expects cooperation from firms involved. It warned: “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.”
The FCA said concerns have arisen around whether some business models may be leading to poor consumer outcomes, particularly where fees reduce the compensation received or where services are used unnecessarily despite the availability of free alternatives.
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 interest.
He added: ‘We will work closely with the FCA on this important review. This is a cross-sectoral problem that requires joined-up solutions.’
The FCA added that the findings of the review will inform any future regulatory or legislative steps required to address risks identified in the sector.
Further information on the review will be published later this month.