Motor finance claims: FCA set to propose redress scheme
Regulators have issued a warning to law firms and claims management companies (CMCs) about their conduct of motor finance claims ahead of tomorrow’s Supreme Court ruling [1].
The Solicitors Regulation Authority (SRA) and Financial Conduct Authority (FCA) said they were “very concerned” about some of the practices they were seeing in the market.
If the ruling gives the green light to claims, it could trigger millions of claims with a value estimated in the tens of billions.
The FCA said that, in this eventuality, it was likely to consult on a free redress scheme, and law firms and CMCs would be expected to inform clients of this and their ability to pursue a claim for themselves free of charge.
There are significant concerns among lawyers about what any scheme would look like, given that those involved in secret commissions may be tasked with working out how much compensation they should pay their customers.
In a joint statement, the regulators said this must be done before a client signs any agreement – even if the redress scheme has not yet been confirmed.
The SRA said that, before entering into an agreement with potential clients, it required law firms to make consumers aware of their rights of termination under the agreement, and any fee that may be payable if they did not go ahead.
Any charges that are applied by law firms or CMCs must be fair and reasonable.
The FCA’s rules require CMCs to inform customers of their right to exit the agreement at any time and any fee that may be payable by them. Any fee must be reasonable and reflect the work actually undertaken.
The pair said they have become “increasingly concerned” about the conduct of some law firms and CMCs in this area.
Issues include the volume and accuracy of marketing materials, “and how information is shared or verified when clients are passed on from third parties”, a failure to advise consumers about the availability of free-to-claim alternatives, and inaccurate or misleading information on the likelihood of success or potential value of a claim
SRA chief executive Paul Philip said: “We are very concerned about some of the practices we are seeing in the motor finance commission claim market. Law firms have a regulatory duty to act in the best interests of their clients.
“But if they mislead clients, fail to get their explicit consent, do not explain cost information clearly or are not sharing the required information on free alternative routes before signing them up, they are clearly failing to meet their obligations.
“Where we find cases where firms are not acting in the best interest of their clients, we will investigate and take action.”
Sheree Howard, executive director at the FCA, added: “We’ve seen law firms and CMCs advertising highly speculative figures, so we are warning them of our expectations when it comes to drumming up clients for motor finance commission claims. We will take action if we see evidence of poor practice.
“Consumers do not need to use a CMC or a law firm. If we introduce a redress scheme for motor finance, we will aim to make it easy for people to take part.
“Consumers should be aware that by signing up now with a CMC or law firm, they may end up paying for a service they do not need and losing up to 30% of any money they may receive.”
Over the last year, the FCA has required 224 motor finance commission promotions to be amended or withdrawn, while the SRA now has 89 live investigations into 73 law firms conducting high-volume claims work.
The FCA will confirm within six weeks of the Supreme Court judgment whether it will propose to introduce a redress scheme for motor finance customers.