The Financial Conduct Authority (FCA) has announced a review of the claims management market, citing widespread concerns over aggressive marketing, misleading advertising, and unfair exit fees that have left consumers at risk of harm.
The regulator said the review will examine whether consumers are receiving fair value, whether financial incentives create conflicts of interest, and whether the full end-to-end consumer journey – from lead generation to advertising – delivers good outcomes. The FCA added it will also investigate whether differing regulatory regimes affect firm behaviour.
Alison Walters, director of consumer finance at the FCA, said the review was needed to address a pattern of consumer harm.
“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,” Walters said. “This review will give us a clear picture of how the market is working and galvanise the further actions that are needed.”
The FCA said it has already removed or amended 800 misleading adverts, and more than 28,000 consumers have been able to exit contracts free of charge. Three claims management companies (CMCs) also reduced unreasonable fees, protecting over 500,000 consumers. Formal investigations are under way, with one already announced by the regulator.
The review follows the establishment of a joint regulatory taskforce in March, set up in response to concerns over the handling of motor finance claims. The FCA said those concerns have brought poor practices into sharper focus, though the review will also cover other areas, including housing disrepair claims.
The FCA is conducting the review in close collaboration with the Solicitors Regulation Authority (SRA), which oversees about 9,000 law firms in England and Wales. As of April 30, the SRA had 109 open investigations relating to 76 firms managing high-volume consumer claims and had closed seven firms in the area.
SRA executive director Aileen Armstrong said the regulator shared the FCA’s concerns.
“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 interests,” Armstrong said. “We will work closely with the FCA on this important review. This is a cross-sector problem that requires joined-up solutions.”
Among the specific concerns cited were consumers being enrolled into claims services without their knowledge or consent, including through unclear opt-in processes on social media adverts, and being signed up by multiple representatives simultaneously, which the FCA said can cause confusion and delay compensation.
The FCA said it expects full cooperation from all parties engaged in the review and warned that robust enforcement action will follow if that cooperation is not forthcoming. The regulator said it will publish further details on the review by mid-May and will make recommendations to the government if it finds that legislative change is necessary.
