Firms representing motor finance customers ‘must act in clients’ best interests’
Regulators have said claims managers and law firms involved in motor finance commission claims must not charge unfair fees for ending an agreement.
Claims management companies and law firms involved in motor finance commission claims are being warned to make sure consumers do not have multiple representatives for the same claim and are not charged excessive termination fees.
The warning was issued jointly by the Financial Conduct Authority (FCA) and the Solicitors Regulation Authority (SRA).
The regulators are reminding claims management companies (CMCs) and law firms that they are expected to have robust checks in place to confirm consumers have not already instructed another representative.
Where claims have more than one representative, firms should work together and consult with the customer to agree the sole representative.
The FCA has also written to lenders setting out the potential actions they should take to address this issue.
If a customer wants to switch representatives or terminate an agreement, firms must do so without charging unfair fees and any fees charged must be reasonable and reflect the work done, the regulators said.
Consumers who believe they were not given the right information when they signed up or have been unfairly charged should complain to the firm in the first instance. If they are dissatisfied with the response, they can take their complaint to the Claims Management Ombudsman or Legal Ombudsman, the regulators said.
Fees charged by FCA-regulated CMCs must provide fair value in line with the Consumer Duty.
The FCA said that following scrutiny, two FCA-regulated CMCs have agreed to change their termination fee policies, protecting 70,000 consumers from excessive charges.
Similarly, SRA-regulated law firms should act in their clients’ best interests, the regulator said. They can only bill in line with the agreement the client signed up to before work started and any “termination” fee must have been clearly stated up-front. Duplicate claims should be resolved through efficient and cost-effective co-operation, the regulators added.
Sheree Howard, executive director of authorisations at the FCA, said: “We’ve been clear about our expectations of CMCs.
“Before starting any case, firms should confirm a customer hasn’t already instructed another representative. Where someone signed up without fully understanding what they were agreeing to, we wouldn’t expect a termination fee to be charged. If any fee is applied, it must be reasonable, and reflect the work done.”
Sarah Rapson, chief executive of the SRA, said: “With potentially millions of claims in this area, protecting consumers is our priority. We expect firms we regulate to abide by the SRA’s clear standards and regulations.
“You must act in the best interest of your clients, including those who may choose to terminate their agreement or who may have signed up to multiple firms. Firms operating here should be under no illusion as to the requirements.”
The regulators said they will continue to monitor firms’ conduct, with poor onboarding and due diligence practices, lack of information to consumers and misleading advertising having contributed to multiple representation.
The FCA said its increased proactive monitoring of financial promotions has led to the removal or amendment of more than 800 misleading adverts by FCA-regulated CMCs since January 2024.
Consumers are also being reminded that they do not need to use a CMC or law firm to claim compensation, and they could lose a chunk of any money they are owed if they do.
Ahead of the FCA introducing a proposed motor finance redress scheme, it is also launching an advertising campaign on Thursday to warn consumers about scammers pretending to be car finance lenders and falsely claiming that people are owed compensation, despite there being no motor finance compensation scheme in place yet.
The campaign urges people: “Don’t rush, be wary.”
Meanwhile, Santander UK said on Wednesday that it has put by another £183 million to cover costs of the motor finance mis-selling scandal.
It added the additional provision for motor finance compensation and costs, on top of £295 million for the saga in 2024, having earlier cancelled third quarter results to assess the impact of the FCA’s redress scheme.
