FCA urged to rethink advice to “millions” of law firm car finance clients

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Stopford: FCA has left consumers stranded

The Financial Conduct Authority (FCA) has been urged to rethink its advice to consumers using law firms in motor finance claims after research showed how many have already signed up.

According to consumer rights group Consumer Voice, six firms alone have nearly 3.8m consumers on their books, with almost 7.8m claims between them.

They are Bott & Co, Consumer Rights Solicitors, Courmacs Legal, Slater & Gordon and The Claims Guys Legal, with the other asking not to be named.

Five other leading firms declined to say, meaning the true number is no doubt much higher.

Following the Supreme Court ruling at the start of this month, the FCA is to consult in October on an industry-wide motor finance compensation scheme, and has stressed again that consumers need not use a law firm or claims management company (CMC); doing so risks losing up to 30% of their compensation in fees, it says.

Its guidance to consumers advises that those already signed up to one can end their agreement, “but you may be charged a fee. This fee should be reasonable and should reflect the work the firm or CMC has already done”.

Consumer Voice pointed out that law firms stepped in because the FCA failed to create a route to compensation when in 2021 it banned discretionary commissions – where the car dealer received a higher commission for selling loans with higher interest rates – leaving lenders who profited from the practice “unchallenged for years”.

While it was right to advise consumers to be cautious now about signing up with a law firm or CMC, Consumer Voice said, “this blunt message doesn’t reflect the fact that it’s far too early to know whether the FCA’s redress scheme will deliver a better outcome than pursuing a claim using professional representation”.

As a result, it is urged those signed up with a law firm to wait until the scheme and for the FCA to “urgently update” its advice accordingly, so that people could ultimately make an informed decision.

Consumer Voice co-founder Nikki Stopford said: “Millions of people did what they thought was right by getting legal help when realistically no other route to justice existed. Now they have been left stranded on the hard shoulder, unsure whether to keep going with their lawyer or switch lanes to the regulator’s scheme. It’s a dangerous pile-up in the making.

“The FCA has told consumers they don’t need representation. But the regulator must also face reality: millions have already taken steps to assert their rights and deserve clear, tailored guidance.

“Anything less risks leaving them confused, anxious, and vulnerable to poor decisions, particularly when there is no guarantee yet about whether the redress scheme will deliver the best outcome for consumers.”

Consumer Voice quoted Coby Benson, consumer rights solicitor at Bott & Co, saying: “People should be aware of their options and, for some people, applying directly to the FCA’s redress scheme will be the right choice. But the process may be more complex.

“You might need to gather evidence, respond to challenges from lenders, and meet strict deadlines. And in cases involving hidden commission or contested finance terms, the FCA’s standard calculation may not deliver the full amount you’re legally entitled to.

“That’s where having expert legal representation could make a difference.”

Darren Smith, managing director at Courmacs Legal, added: “We must be clear about timeframes, costs, evidential requirements, likelihood of success, enforcement, and potential compensation. And where another route could be free or more cost-effective, we have a duty to make that clear so clients can decide what’s truly in their best interests.”

Consumer Voice’s advice to consumers already signed up with a firm was that they should “expect to be informed” of their options, including free alternatives, understand their exit fees and know their rights, including the right to complain if their lawyer failed to follow Solicitors Regulatory Authority rules.

When the time came, they should “weigh the FCA scheme against the court route”. They might also “simply decide you need support to help you navigate the FCA compensation scheme”.

Consumer Voice said the October consultation would be “a turning point” for consumer redress in car finance. “But in the drive for simplicity and cost-effectiveness, the scheme must not ignore the complexity of individual cases.”

Alex Neill, co-founder of Consumer Voice, will be speaking in the session ‘Motor finance claims – where next?’ at our Claims Futures conference on 22 October in Manchester. Early bird tickets are currently on sale.