The FCA has joined with the Solicitors Regulation Authority, Information Commissioner’s Office and the Advertising Standards Authority to tackle misleading advertising and inadequate information provided by some claims management companies.

They are also tackling law firms working on motor finance claims, and the risk that excessive fees are charged to clients.

Alison Walters, director, consumer finance, at the FCA, said: “Misleading advertising and inadequate disclosure have meant that people are signing contracts with some firms without the facts. When they try to exit, they face high fees.

“We’re acting where we see bad practice and, through our own advertising, we’re ensuring consumers can make informed choices.”

In February the FCA said the standards of CMCs were improving but there were areas where firms were not meeting its expectations.

The FCA has regulated CMCs since 2019 and said since then it has observed a steady decrease in the number of CMCs, with lead generators now accounting for more than half of the industry.

It warned that often CMCs engage in claims which fall outside of the FCA’s perimeter, and a customer might assume those services are covered by its rules.

The FCA has launched a £1m ad campaign to make people aware they don’t need to use a CMC or law firm to seek motor finance compensation, and that they stand to lose a chunk of any compensation they’re owed if they choose to.

Using powers under the Consumer Rights Act 2015 and, for the first time, under the Digital Markets, Competition and Consumers Act 2024, the FCA, working closely with the SRA, has required nine law firms to provide information about their exit fees. Two FCA regulated CMCs have agreed to change their exit fee policies. 

Two others have agreed not to take on clients or to advertise until they’re able to show the FCA they comply with FCA rules.

Paul Philip, chief executive of the SRA, said: "The risks and issues facing consumers in this area of the market are unprecedented, and we are using all the levers at our disposal to protect consumers, identify poor practices and hold law firms to account.” 

The SRA is investigating 76 law firms involved in high-volume claims and has closed five firms to protect the public.

Since January, the ICO said it has received more than 230,000 complaints regarding unsolicited and unlawful direct marketing practices linked to motor finance claims. The ICO said it has multiple investigations ongoing and is actively considering further regulatory action against several organisations.