UK regulator launches review of ‘aggressive’ claims management firms amid compensation concerns

The UK's Financial Conduct Authority has launched a review of claims management companies, citing aggressive marketing, misleading advertising, and unfair fees that are harming consumers seeking compensation [1]. The regulator said some firms are misleading victims of financial scandals, such as the widespread car finance mis-selling, and can charge fees worth up to 33% of a customer's final payout [1]. Some consumers have been signed up without their permission or by multiple companies, which can delay compensation [1]. Millions of people are expected to receive payouts this year over the motor finance scandal, where drivers were overcharged for loans due to commission arrangements between 2007 and 2024 [1]. Alison Walters, the FCA's director of consumer finance, stated, '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' [1]. The review follows the establishment of a joint taskforce with other regulators in March to tackle misleading adverts and sign-up processes [1]. So far, the FCA has removed or amended 800 misleading adverts, and more than 28,000 consumers have exited contracts free of charge, with three CMCs agreeing to reduce their fees [1]. The Solicitors Regulation Authority, whose director Aileen Armstrong also expressed concern over poor practices, has opened over 100 investigations into 76 law firms managing consumer claims [1]. The claims management industry expanded rapidly after the 2011 judicial review that triggered mass payouts for the payment protection insurance (PPI) scandal [1]. CMCs made an estimated £3.8bn to £5bn from PPI claims between 2011 and 2015 [1]. The FCA, which took over regulation of the sector in 2019, had previously set a 20% cap on commissions for PPI claims and, by 2022, capped commissions for non-PPI claims at 30% [1].