Financial and legal regulators have issued a stark warning to claims management companies and law firms involved in motor finance commission claims, demanding they act in clients' best interests and avoid charging unfair termination fees. The joint alert from the Financial Conduct Authority (FCA) and the Solicitors Regulation Authority (SRA) emphasises that firms must ensure consumers are not represented by multiple parties for the same claim and are not subjected to excessive charges when ending agreements.
Clear Expectations for Fair Treatment
The regulators have reminded all firms operating in this sector that they are expected to implement robust checks to confirm whether a consumer has already instructed another representative before taking on a case. Where duplicate representation occurs, firms should collaborate efficiently and consult with the customer to agree on a sole representative, ensuring the process remains cost-effective and transparent.
Termination Fees Under Scrutiny
If a customer wishes to switch representatives or terminate an agreement, firms must do so without imposing unfair fees. Any charges levied must be reasonable and accurately reflect the work already undertaken. The FCA has clarified that where someone signed up without fully understanding their agreement, no termination fee should be charged. This stance is reinforced by the Consumer Duty, which requires FCA-regulated claims management companies to provide fair value in all their dealings.
Following regulatory scrutiny, two FCA-regulated claims management companies have already agreed to amend their termination fee policies, a move that protects approximately 70,000 consumers from excessive charges. Similarly, SRA-regulated law firms are reminded that they must act in their clients' best interests, billing only in accordance with the agreement signed before work commenced, with any termination fee clearly stated upfront.
Consumer Complaints and Redress Pathways
Consumers who believe they were not provided with adequate information during sign-up or have been unfairly charged are advised to complain directly to the firm initially. Should they remain dissatisfied with the response, they can escalate their complaint to the Claims Management Ombudsman or the Legal Ombudsman for independent review.
Proactive Monitoring and Enforcement
The regulators have committed to continuing their vigilant monitoring of firms' conduct, noting that poor onboarding practices, inadequate due diligence, lack of consumer information, and misleading advertising have all contributed to the issue of multiple representation. The FCA's increased proactive monitoring of financial promotions has already led to the removal or amendment of more than 800 misleading advertisements by regulated claims management companies since January 2024.
Sheree Howard, Executive Director of Authorisations at the FCA, stated: "We've been clear about our expectations of claims management companies. Before starting any case, firms should confirm a customer hasn't already instructed another representative. Where someone signed up without fully understanding what they were agreeing to, we wouldn't expect a termination fee to be charged. If any fee is applied, it must be reasonable, and reflect the work done."
Sarah Rapson, Chief Executive of the SRA, added: "With potentially millions of claims in this area, protecting consumers is our priority. We expect firms we regulate to abide by the SRA's clear standards and regulations. You must act in the best interest of your clients, including those who may choose to terminate their agreement or who may have signed up to multiple firms. Firms operating here should be under no illusion as to the requirements."
Consumer Awareness and Scam Warnings
In a related development, consumers are being reminded that they are not obligated to use a claims management company or law firm to seek compensation. Engaging such services could result in losing a significant portion of any money owed. Ahead of the FCA's proposed motor finance redress scheme, the authority is launching an advertising campaign to warn the public about scammers impersonating car finance lenders and falsely claiming compensation is due, despite no official scheme being in place yet. The campaign's key message is: "Don't rush, be wary."
Financial Institutions Respond
Meanwhile, Santander UK has announced an additional provision of £183 million to cover costs associated with the motor finance mis-selling scandal, on top of the £295 million set aside in 2024. This move follows the bank's earlier decision to cancel its third-quarter results to assess the impact of the FCA's forthcoming redress scheme, highlighting the significant financial implications for lenders involved in these cases.
