FCA clamps down on hundreds of motor finance claims promotions

Regulators have shut down hundreds of advertisements making motor finance customers unrealistic promises of compensation, it emerged today.

Nikhil Rathi, chief executive of the Financial Conduct Authority, told the House of Commons Treasury Committee that 400 promotions by claims management companies have been removed or amended since last year for being unfair or inaccurate.

Around 170 of these take-downs have been since the Supreme Court judgment on motor finance handed down in August, suggesting the ruling has done little to put off CMCs from advertising for clients.

Rathi said the FCA will be ‘firm and assertive’ with any regulated entity making misleading communications with consumers about the compensation they can expect to receive.

The FCA is standing by its estimate made in the aftermath of the Supreme Court's ruling that compensation payments are likely to average hundreds rather than thousands of pounds. The committee heard that law firms and CMCs are still putting out ‘high-pressured advertising’ telling consumers that they can secure compensation of around £4,500 if they were treated unfairly when taking out finance to buy cars between 2007 and 2020.

‘It won’t surprise this committee that several law firms think we have under-estimated [compensation estimates],’ said Rathi.

Claims firms have led a charge in the past four years to sign up thousands of potential clients to bring claims over hidden commissions paid by lenders to car dealers.

A Court of Appeal ruling that these agreements were unlawful turbo-charged this industry, but the Supreme Court ruling appeared to put the brakes on.

Judges concluded that dealers owed no fiduciary duty to consumers or gave any legal undertaking they were putting aside their own commercial interest. But in one case decided on its merits, the 55% commission paid to the dealer was deemed to be unfair – offering hope to lawyers who saw this as an opportunity to pursue existing and new claims.

The FCA almost immediately pledged to consult on a new compensation scheme effectively aimed at taking lawyers out of the equation and providing direct redress to eligible consumers.

Rathi said today that the majority of the 14.6m car finance deals involving discretionary commission made during the relevant period are likely to result in compensation, but he stressed to consumers that they should not engage with claims firms.

‘If you are concerned you should contact your lender and complain now,’ he said. ‘You do not need to use a claims management companies or a law firm who may take up to 30% of any compensation that you are due.’

FCA chair Ashley Alder added: ‘We want to ensure that the design of the [compensation] scheme is pitched at a level which does offer consumers a fair outcome and a better alternative [to the courts] for the vast majority.’

The FCA will publish its consultation in the coming weeks and expects a ‘critical mass’ of compensation claims to be dealt with in 2026.