UK regulators are tightening expectations around conduct in the fast-expanding motor finance commission claims market, a move that has direct implications for insurers, lenders and their claims handling partners as complaint volumes continue to rise ahead of a potential industry-wide redress scheme.
In a joint intervention, the Financial Conduct Authority (FCA) and the Solicitors Regulation Authority (SRA) have warned claims management companies (CMCs) and law firms to address widespread failures around onboarding controls, multiple representation and termination fees. While the guidance is aimed at representatives, the regulators have also written directly to lenders, signalling that firms funding and settling claims will be expected to play a role in reducing friction and consumer harm.
For insurers and motor finance providers, the message is that weak controls upstream are translating into operational strain, duplicated claims, rising dispute costs and an elevated risk of customer detriment downstream.
Multiple representation has become a growing feature of motor finance commission complaints, driven by aggressive advertising and lead-generation activity. Consumers are often signing agreements with more than one CMC or law firm, sometimes unknowingly, creating duplicated claims submissions and disputes over authority to act.
For lenders and their insurers, this has practical consequences. Duplicate claims increase administrative costs, slow resolution times and heighten the risk of inconsistent outcomes. In some cases, competing representatives’ fee structures can materially reduce the compensation ultimately paid to the customer, increasing the likelihood of secondary complaints and reputational damage for the firms funding redress.
The FCA and SRA have now made clear that preventing this behaviour through proper onboarding and verification checks is a baseline regulatory expectation. Representatives are required to confirm whether a consumer has already instructed another firm before accepting a claim, rather than relying on post-submission resolution.
Termination fees have also emerged as a key regulatory concern, with implications for how much redress customers actually receive. The regulators said some CMC and legal contracts continue to include blanket early-exit charges or poorly disclosed clauses that penalise consumers for switching representatives, regardless of the work carried out.
From an insurance and lender perspective, these fee models increase the risk that redress payments are eroded by costs that fail the FCA’s “fair value” test under the Consumer Duty. They also raise the likelihood of disputes escalating into complaints handled by firms rather than representatives.
Following FCA intervention, two supervised CMCs have already agreed to amend their termination fee policies, a change the regulator said will benefit around 70,000 consumers. The FCA has been explicit that termination fees must be clearly disclosed, proportionate to work actually done and not used to lock customers into representation arrangements they no longer want.
Law firms regulated by the SRA have been reminded that they can only charge fees agreed upfront and must resolve duplicate representation issues through efficient, cooperative approaches, rather than prolonged disputes that delay claims outcomes.
The regulatory focus comes as the FCA continues to assess the shape of a possible motor finance redress scheme, which could have significant balance-sheet and claims-handling implications for lenders and their insurers.
Weak onboarding, misleading promotions and poor consumer understanding are already inflating complaint volumes. Since January 2024, the FCA has required more than 800 misleading adverts from FCA-regulated CMCs to be removed or amended, highlighting the scale of supervisory concern. The regulator has also opened an investigation into one CMC over its advertising and sales practices.
In parallel, the FCA will launch a consumer awareness campaign on February 5 warning about scammers posing as car finance lenders and falsely claiming compensation is already available, despite no formal scheme being in place.
For insurers and financial services firms, the joint warning underlines the need to monitor not just internal claims processes, but also the conduct of third-party representatives feeding cases into the system. As regulatory scrutiny intensifies, poor practices elsewhere in the value chain are increasingly being viewed as a source of operational, conduct and reputational risk for the industry as a whole.
