Law firms face scrutiny as FCA starts claims management review

A newly-launched review of the claims management market will include scrutiny of the law firms at the end of the supply chain, regulators have revealed.

The Financial Conduct Authority this week announced the scope of its comprehensive review of the market amid concern that consumers are being misinformed and short-changed by those supposed to be representing their interests.

The FCA, which regulates claims management companies, has worked closely with the Solicitors Regulation Authority in the past six months to monitor misleading marketing and poor practices.

The market study is a significantly addition to the work, and the FCA made clear in its terms of reference that where misconduct by solicitors and law firms is identified, that information will be passed on and enforcement action will follow. Where existing powers are not enough to adequately address concerns that may be uncovered, the FCA said it will consider making recommendations to the government for immediate reform.

The review will focus on the level and nature of lead generation and advertising activities and the extent that it leads to poor consumer choices and other harm. Regulators also want to know whether consumers are supported and informed throughout the claim journey.

Price levels and structures, business models and the resilience of firms will also come under the microscope, particularly for financial mis-selling and housing disrepair claims.

The FCA said: ‘We will consider whether features of the market give rise to incentives for behaviour by firms that is harmful to effective competition and does not deliver good outcomes for consumers.

‘On the demand side, we will examine the full end-to-end consumer journey, including interactions with lead generators, as well as CMCs and law firm.’

The FCA’s data from 2024 shows that 75% of leads from claims lead generators are ultimately delivered to law firms. But the number of claims management companies has shrunk rapidly, falling from around 900 in 2019 to fewer than 400 today.

The financial regulator believes that consumers have limited awareness about the role of lead generators and their relationship with law firms, or about the data that is freely shared between companies in the chain.

It wants to analyse the costs of acquiring customers and processing claims to see whether consumers are getting value for money.

FCA director of consumer Alison Walters said: ‘We’ve seen firsthand from the way some claims firms have handled car finance complaints that, all too often, they make a difficult situation worse.

‘Poor practices include unwanted texts or emails sent to people who never asked to be contacted, driving 6 million complaints to the Information Commissioner’s Office; misleading adverts, particularly on social media, promising returns that don’t stack up; unfair cancellation fees quietly buried in contracts; consumers being signed up – sometimes to multiple claims firms – without meaningful consent; and reports of fraudulent signatures.

‘All of this leaves consumers harassed, confused, potentially misled, and out of pocket.’

The market study runs to 19 June, with a final report expected by next May.