The FCA has launched a review into the claims management and lead generation market amid concerns over firms’ ‘aggressive marketing’ and ‘misleading advertising’.
The review, launched with the Solicitors Regulation Authority (SRA), will also look into concerns that claims management firms are signing consumers up without their consent and without explaining the implications of signing up, including via social media adverts. The regulator claimed some firms are also using unfair exit fees.
It will examine whether claims firms’ customers are receiving fair value for the fees they pay, which are often as much as 30% of the final payout. Claims firms are regulated by the FCA while law firms are regulated by the SRA, but many law firms represent similar financial mis-selling claims to claims management companies.
Many claims firms have historically targeted advice firm customers over ongoing advice after it came to light that some big advice firms were not delivering an ongoing service and would have to pay compensation.
There have also been many cases where claims firms have targeted specific advice firms when they go into liquidation, in some cases with the same directors involved in both firms (known as phoenixing). The FCA appears to also be examining this, stating it will look into “fee structures, funding and insurance arrangements, including whether these create conflicts of interest”.
Alison Walters, director of consumer finance, 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.”
The FCA said it will publish further information on the review later this month, and said it will take “robust action” against firms that do not cooperate during the review.
