The Financial Conduct Authority (FCA) is launching a review of the claims management market after raising concerns about poor practices by some claims management companies and law firms.
The regulator said the review would examine the root causes of poor practice across the market, including aggressive marketing, misleading advertising and unfair exit fees.
It will also consider concerns that consumers are being signed up without their consent, without clear upfront explanations of the implications of signing up or ticking a box, including through social media adverts.
The FCA said some consumers may also be signed up by multiple representatives, potentially causing confusion and delaying compensation.
Although the conduct of some claims management companies and law firms in relation to motor finance claims has brought the issue into sharper focus, the regulator said it was also concerned about the handling of other claims, including housing disrepair.
The review will be carried out in close collaboration with the Solicitors Regulation Authority and other regulatory partners.
The FCA said it would use its review, supervisory and enforcement powers to examine whether consumers are receiving fair value, including competition on price and quality, and whether existing price caps remain fit for purpose, particularly where free-to-use redress mechanisms are available.
It will also look at financial incentives, including fee structures, funding and insurance arrangements, and whether these create conflicts of interest or lead to poor conduct and outcomes.
The full end-to-end consumer journey, including lead generation, marketing and advertising, will also form part of the review, alongside whether different approaches across regulatory regimes affect firm behaviour.
The regulator said it would assess whether some firms were failing to secure the appropriate permissions.
The FCA said it expected full, prompt and open cooperation from all parties involved in the review, adding that it and its regulatory and enforcement partners would take robust action where this was not forthcoming.
Where legislative change is considered necessary, the FCA said it would make recommendations to government or relevant bodies, including whether claims management companies 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.”
Aileen Armstrong, executive director, strategy, innovation and external affairs at the SRA, 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 FCA said it would publish further information on the review by mid-May.
It will also continue to intervene where it sees harm, including through the joint regulatory taskforce set up to address the poor handling of motor finance claims.
The taskforce is looking at issues including misleading advertising and sign-up processes, meritless claims and multiple representation.
It will also examine firms’ financial and operational resilience, including the quality and integrity of accounting and audit practices.
