When consumers are wronged, many rightly seek fair compensation. Some complain directly, without paying a penny using free Ombudsman services. Others turn to claims management companies (CMCs) or law firms.
They can provide a valuable service and support access to justice.
However, we’ve seen firsthand from the way some claims firms have handled car finance complaints that, all too often, they make a difficult situation worse.
Poor practices include unwanted texts or emails sent to people who never asked to be contacted, driving 6 million complaints to the Information Commissioner’s Office; misleading adverts, particularly on social media, promising returns that don’t stack up; unfair cancellation fees quietly buried in contracts; consumers being signed up – sometimes to multiple claims firms – without meaningful consent; and reports of fraudulent signatures.
All of this leaves consumers harassed, confused, potentially misled, and out of pocket.
Action against poor practice
We’ve acted against such sharp practice.
Since January 2024, over 1,000 misleading car finance claims adverts have been removed or amended. Three claims management companies reduced unreasonable fees, protecting over half a million people. Four firms cannot currently take on new clients and enforcement investigations are under way.
We’ve also launched a joint taskforce with the Solicitors Regulation Authority (SRA), ICO, and Advertising Standards Agency to tackle the poor handling of motor finance claims.
But we know we need to go further.
So, we’re launching a comprehensive review of the claims management market.
What we will look at
We’ve set out the scope of our market study, its potential outcomes and the next steps. We’ll examine:
- How claims firms find and advertise to consumers, and how well consumers are kept informed and supported.
- Whether firms provide value for money, including whether current price caps remain fit for purpose.
- Whether business incentives and funding models, including opaque offshore funding structures, are driving poor conduct.
- Whether firms are financially resilient enough to continue supporting the thousands, or even millions of customers, they claim to serve.
- How differences in the way firms operating in the same market are regulated affect their behaviour, and what that means for consumers.
Working closely with the SRA and other regulators, we’ll look at the practices of law firms, as well as CMCs we regulate. We’ll focus on claims management services for financial services, alongside housing disrepair claims – an area where we’ve also had reports of poor behaviour. We’ve chosen these as two areas with potentially different business models and pricing incentives, giving us a broader view of the market. And while they are our starting point, we’ll consider whether what we find has wider relevance across other claims management services, and act where broader issues emerge.
Wider reforms
We have seen when claims firms behave badly or collapse completely, they don’t just harm the people they’re supposed to represent. They erode trust and heap unnecessary cost and uncertainty on those on the receiving end of poor quality or meritless claims, leaving Ombudsman services and courts mired in an ever-growing caseload.
All of which damages consumer and investor confidence - with some financial firms and their backers becoming hesitant about launching new products or serving different customers in innovative ways. That, in turn, creates a drag on investment, productivity and growth.
Broader reforms, therefore, also matter.
With the Financial Ombudsman Service and the Government, we are creating a fairer, more proportionate and predictable redress system.
We’ve also been clear that, motor finance aside, there are no other mass redress events on our radar. And with the Consumer Duty setting a higher standard in financial services, they are less likely in the future.
We want a claims management market that works well and is trusted to serve the interests of its customers. Where firms have confidence in a stable, predictable environment in which to invest, innovate and grow.