Regulators to tackle misleading motor finance claims practices

Four UK regulators have launched a coordinated effort to tackle misleading advertising, excessive fees, and poor practices by some claims management companies (CMCs) and law firms involved in motor finance claims.

The Financial Conduct Authority (FCA), Solicitors Regulation Authority (SRA), Information Commissioner’s Office (ICO), and Advertising Standards Authority (ASA) has today announced a joint initiative aimed at improving transparency and protecting consumers from being misled or overcharged.

The move follows rising concerns about misleading promotions and opaque exit fees linked to motor finance claims.

Alison Walters, the FCA’s director of consumer finance, 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.”

Paul Philip, chief executive of the SRA, described the situation as “unprecedented”, adding:

“We are using all the levers at our disposal to protect consumers, identify poor practices and hold law firms to account.”

Using powers under the Consumer Rights Act 2015 and, for the first time, under the Digital Markets, Competition and Consumers Act 2024, the FCA has required nine law firms to disclose information about their exit fees. Two FCA-regulated CMCs have agreed to amend their fee structures, while two others have suspended client work and advertising until they can demonstrate compliance with FCA rules.

The FCA said it will write this week to all FCA regulated CMCs handling motor finance claims to reiterate its expectations.

Since January 2024, the regulator has ordered the removal or amendment of more than 740 misleading adverts by FCA-regulated CMCs, particularly following the Johnson judgment, which prompted a surge in compensation claims. Many adverts were found to include exaggerated success rates and unrealistic compensation estimates.

In a related move, the FCA has launched a £1 million public awareness campaign advising consumers that they do not need to use a CMC or law firm to seek motor finance compensation. Research cited by the regulator found that 40% of people were unaware they could claim directly. The campaign will run online and on radio.

The SRA is also escalating enforcement activity, with 76 law firms under investigation for their handling of high-volume claims. Five firms have already been closed to protect the public. The regulator’s recent Thematic Review outlined key issues in the sector and clarified its expectations around termination fees.

Meanwhile, the ICO reported receiving over 230,000 complaints this year about spam texts and unlawful marketing linked to motor finance claims. Several investigations are ongoing, with the watchdog considering further regulatory action.

The ASA is separately reviewing advertising practices in the sector.

Consumers who believe they have been misled or overcharged are urged to first complain to the firm involved. If unsatisfied, they can escalate the issue to the Claims Management Ombudsman or ICO website.

Individuals concerned about unlawful marketing or data misuse can report issues to the ICO via its website or by forwarding spam texts to 7726 (which spells “SPAM”).