City regulator the Financial Conduct Authority has broadened its scrutiny of the civil claims sector, proposing that law firms 'should be subject to stronger compensation mechanisms if they cause harm'.
The FCA, which took over the regulation of claims management companies in 2019, has already clamped down on firms promoting motor finance compensation schemes. It today announced a review of the entire claims management market 'following concerns that consumers are being failed by some claims management companies (CMCs) and law firms'.
According to the FCA, the review will look at 'the root causes of poor practices across the market, like aggressive marketing, misleading advertising and unfair exit fees. Other concerns include consumers being signed up without their consent - without clear, upfront explanations of the implications of signing up or ticking a box, for example on social media adverts - or by multiple representatives, potentially causing confusion and delaying compensation.’
The announcement cited concerns about the handling of housing disrepair claims as one reason to take action. The review will examine:
- Whether consumers receive fair value, including competition on price and quality, and whether existing price caps are still fit for purpose, especially where free-to-use redress mechanisms exist.
- Financial incentives, including fee structures, funding and insurance arrangements, and whether these create conflicts of interest and/or lead to poor conduct and outcomes.
- Whether the full end-to-end consumer journey, including lead generation, marketing and advertising, delivers good consumer outcomes.
- Whether different approaches across different regulatory regimes affects firm behaviour and if some firms are failing to secure the appropriate permissions.
It warned: 'We expect full, prompt and open cooperation from all parties we engage in the review. We, with our regulatory and enforcement partners, will take robust action if this is not forthcoming.
'Where we believe legislative change is needed, we will make recommendations to government, or relevant bodies, including whether CMCs and law firms should be subject to stronger compensation mechanisms if they cause harm.'
Alison Walters, director of consumer finance at the FCA, said: '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. This review will give us a clear picture of how the market is working and galvanise the further actions that are needed.'
Further information on the review will be published later this month.
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