Law firms advertising for motor finance claims have been ordered to be more honest to clients about the consequences of walking away.

The Solicitors Regulation Authority and Financial Conduct Authority have come together to root out misleading literature on firms’ websites about the real costs of running these claims.

Nine firms have now been told they must provide information about the fees which will be incurred if clients tear up their retainer. Two claims management companies, which are regulated by the FCA, must change their exit fee policies while two others have agreed not to take on clients or to advertise until they are able to show they comply with the rules.

Portrait of Paul Philip

Philip: 'We are using all levers at our disposal to protect consumers, identify poor practices and hold law firms to account'

Source: Michael Cross

The imposition on firms to change their marketing messages was made using powers under the Consumer Rights Act and – for the first time – the Digital Markets, Competition and Consumers Act 2024.

Paul Philip, SRA chief executive, said: ‘The risks and issues facing consumers in this area of the market are unprecedented, and we are using all the levers at our disposal to protect consumers, identify poor practices and hold law firms to account.’

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The FCA says it has removed or amended more than 740 misleading advertisements by regulated claims management companies since January 2024. This number increased significantly following the Supreme Court's rulings on car finance in August. Regulators are particularly concerned that firms are making unrealistic claims about success rates and the value of potential compensation.

Alison Walters, director of consumer finance at the FCA, said: 'Misleading advertising and inadequate disclosure have meant that people are signing contracts with some firms without the facts. When they try to exit, they face high fees. We’re acting where we see bad practice and, through our own advertising, we’re ensuring consumers can make informed choices.'

The FCA is spending £1m on an advertising campaign to tell consumers that they do not need to use a claims management company or law firm to secure compensation from lenders. The regulator is stressing how these firms will keep a portion of the compensation and points to its research showing four in 10 people are unaware they can bypass lawyers. Details of the FCA’s own compensation scheme are due to be revealed later today.