FCA issues fresh warning to claims management companies ahead of redress scheme

The FCA and Solicitors Regulation Authority (SRA) have issued a joint warning to claims management companies (CMCs) and law firms involved in motor finance commission claims to make sure consumers don’t have multiple representatives for the same claim and are not charged excessive termination fees.

The regulators are reminding CMCs and law firms that they are expected to have robust checks in place to confirm consumers have not already instructed another representative. The FCA has also written to lenders setting out the potential actions they should take to address this issue. 

The regulators say that if a consumer wishes to switch representatives or terminate an agreement, firms must do so without charging unfair fees and any fees charged "must be reasonable and reflect the work done". 

Fees charged by FCA-regulated CMCs must also provide fair value in line with the Consumer Duty. Following scrutiny from the FCA, two FCA-regulated CMCs have agreed to change their termination fee policies, protecting 70,000 consumers from excessive charges. 

Similarly, SRA-regulated law firms should act in their clients’ best interests. They can only bill in line with the agreement the client signed up to before work started and any ‘termination’ fee must have been clearly stated up-front. Duplicate claims should be resolved through "efficient and cost-effective co-operation". 

The FCA’s increased monitoring of financial promotions has led to the removal or amendment of more than 800 misleading adverts by FCA-regulated CMCs since January 2024. The FCA recently opened an investigation into a CMC following concerns about its advertising and sales tactics in relation to potential motor finance commission claims.

Ahead of the FCA introducing a proposed motor finance redress scheme, it will be launching an advertising campaign this week to warn consumers about scammers pretending to be car finance lenders and falsely claiming that people are owed compensation, despite there being no motor finance compensation scheme in place yet.

Sheree Howard, executive director of authorisations at the FCA, said: “We’ve been clear about our expectations of CMCs. Before starting any case, firms should confirm a customer hasn’t already instructed another representative. Where someone signed up without fully understanding what they were agreeing to, we wouldn't expect a termination fee to be charged. If any fee is applied, it must be reasonable, and reflect the work done.”

Sarah Rapson, chief executive of the SRA, commented: “With potentially millions of claims in this area, protecting consumers is our priority. We expect firms we regulate to abide by the SRA's clear standards and regulations. You must act in the best interest of your clients, including those who may choose to terminate their agreement or who may have signed up to multiple firms.  

“Firms operating here should be under no illusion as to the requirements. We have reminded them of their responsibilities on a number of occasions, including in a recent Warning Notice and in our updated claims management guidance. We will continue to engage with firms in this area and take action where required.”