Howard: Helping consumers make informed decisions
The Financial Conduct Authority (FCA) is not trying to discourage motor finance victims from seeking professional representation, a senior executive insisted last week.
Sheree Howard, executive director of authorisations and the interim joint chief operating officer, said the £1m advertising campaign reminding consumers that they did not require the assistance of a solicitor or claims management company (CMC) to claim was to ensure they made “a properly informed decision” on whether a representative is right for them”
She told our Claims Futures conference last week: “Our campaign is designed to bring balance, fairness, transparency, information and focus on what’s the best interest of the consumer and to help them make an informed decision, especially for those who are vulnerable and most likely to be drawn in by some of the advertising we’ve seen on social media or sign agreements without fully understanding what they’ve agreed to, only to be hit with cancellation fees that they didn’t expect.
“I really do want to stress this is not about preventing professional representatives from providing quality advice to their customers and acting in their best interests.
“We are really aware and know the value a representative can bring when they act in the customer’s best interests.”
In discussion, Matthew Maxwell-Scott, executive director of the Association of Consumer Support Organisations, said it was “strange” that the FCA was spending £1m “actively encouraging people not to use the organisations that they regulate”.
Ms Howard replied: “It is not about stopping an industry that I’ve been very clear has exposed wrongdoing in the financial industry and is a key part of giving consumers access to justice.
“Yes, we have spent a million, but I’m sure that the people in this room are spending many multiples of that to generate claims. We’re just trying to put some balance in the market to make sure consumers can make an informed choice.”
In her address, Ms Howard pointed to the FCA’s Financial Lives research last year that showed 8% of adults had made a claim for compensation, with around a quarter of those using a professional representative (what the FCA calls law firms and CMCs).
“A significant proportion who’d used professional representation said that they wouldn’t have thought about claiming if it wasn’t for that help and 64% said they weren’t confident enough to do it themselves.”
She continued: “CMCs and law firms play a critical role in helping consumers seek redress, but with that role comes responsibility. Responsibility to act with integrity, to ensure claims are genuine and deliver value, not just volume.”
At the same time, more people felt dissatisfied with the service they received, with about 30% feeling the fee they paid was unfair.
The number of active FCA-regulated CMCs has declined steadily since it took on the role in 2019 and there had been a shift to lead generation, rather than advice and assistance.
“More recently, of course, we’ve seen the referral of high volumes of motor finance claims and we expect to see yet more change this time in the housing disrepair and employment sectors.
“With forthcoming changes in law, we know margins can be tight. The Financial Ombudsman charging model has added significant pressure to the business models of professional representatives operating in this space.
“Perhaps not the best market conditions for the regulator to demand higher quality, but we do think this is a pivotal time for the sector. The consumer claims landscape is shifting rapidly driven by technological innovation, litigation funding and heightened public awareness.”
Ms Howard noted that too many CMCs had treated the fee cap imposed by the FCA as simply setting the price of their services, rather than just a maximum figure. The consumer duty, introduced in 2023, put further emphasis on ensuring fees were “proportionate to the benefits provided and reflective of the actual work done”.
She pledged that the FCA would challenge firms over their fees if it considered them too high.
This applied to termination fees as well. “This is something we’ve already started to monitor and will continue to do so very closely. We’ve been very pleased to see that several of our firms who’ve taken the feedback on board and made changes to make things fairer for their customers and we hope to see more following suit.”
Fairness also applied at the front end, with the FCA identifying failures to conduct due diligence on the source of leads or customer data on whether the customer had given consent.
“Our financial rules for CMCs are centered around promotional material being clear, fair, and not misleading. We are really pleased to see the growth in transparent advertising in the sector, but nevertheless, since January 2024, we’ve had to request the removal or amendment of over 700 financial promotions related to motor finance claims alone.”
Ms Howard highlighted good practice by some CMCs around personal subject access requests, where they work with the respondent firms to share only what is needed to assess potential claims, rather than simply request full client data.
She concluded: “We really do believe that well-functioning claims management industry helps to expose wrongdoing and poor practice and therefore is really vital. It’s an essential component in our financial services market.”