FCA and SRA warn claims firms on excessive exit charges

Claims firms have been issued yet another warning notice about malpractice, with regulators this time clamping down on termination fees charged to clients.

The Financial Conduct Authority and Solicitors Regulation Authority today released a joint statement setting out the behaviour expected of the claims management companies and law firms they oversee.

It is the second warning notice in the space of a week aimed at the claims sector, after the SRA issued an alert regarding no win, no fee agreements. The FCA and SRA have also come together in recent months to warn lawyers about misleading marketing practices.

This time their focus is on consumers being charged excessive fees for terminating a retainer when they want to end their claim or switch to another representative. The notice is targeted at CMCs and law firms involved in particular in motor finance commission claims.

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

Following analysis of the sector, two FCA-regulated CMCs have agreed to change their termination fee policies, protecting around 70,000 consumers from excessive charges.

Similarly, the SRA stresses that firms 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.

Sarah Rapson, SRA chief executive, said: ‘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.’

Meanwhile, the FCA will tomorrow launch an advertising campaign further promoting the motor finance redress scheme and warning consumers about scammers promising to secure them compensation through the scheme, despite it not yet being in place.

The regulator’s guidance remains that consumers do not need to use a CMC or law firm to claim compensation and they could lose a ‘significant chunk’ of any money they are owed if they do.