The UK's financial regulator has unveiled major changes to claims management practices following the confirmation of a compensation scheme for victims of the car finance scandal.
The Financial Conduct Authority (FCA) has launched a review of the claims management market after concerns were raised about the sector.
It will look at the root causes of poor practices across the market, including aggressive marketing, misleading adverts and unfair exit fees.
It noted that it had outlined areas where expectations were not being met, but warned that poor behaviour in the sector continued to take place.
Alongside the Solicitors Regulation Authority (SRA) and other regulatory partners, the FCA said it would use supervisory and enforcement powers.
Specific areas being looked at include whether consumers receive fair value, especially on competition for prices and quality, and whether existing price caps are still fit for purpose.
It will also address financial incentives and whether these can lead to conflicts of interest, in addition to poor outcomes.
The FCA added that it expected "full, prompt and open cooperation from all parties" in the review.
The FCA has confirmed that it will conduct a review into claims management practices
| PAIt warned that it would take "robust" action if businesses were not forthcoming in their response to the review, alongside regulatory and enforcement partners.
If the FCA believes changes to the market need to be made, it will make recommendations to the Government or relevant bodies.
This could include whether claims management companies and law firms should be subject to stronger compensation mechanisms if they cause harm.
Alison Walters, director of consumer finance at the FCA, said: "CMCs and law firms can help consumers secure compensation they are owed.
LATEST DEVELOPMENTS
Nikhil Rathi, CEO of the FCA, confirmed that 12.1 million agreements could be included in the final redress scheme | PARLIAMENT TV"But too often consumers are being let down, eroding trust in firms that should be supporting them and damaging the economy.
"This review will give us a clear picture of how the market is working and galvanise the further actions that are needed."
This was emphasised by Aileen Armstrong, SRA executive director, strategy, innovation and external affairs, who explained concerns about CMCs and law firms engaging in "poor practices".
"We will work closely with the FCA on this important review. This is a cross-sectoral problem that requires joined-up solutions," she added.
The FCA said the average agreement would receive £829 in compensation in the aftermath of the car finance scandal | PA The FCA confirmed that it would publish further information on the review by mid-May, alongside its joint regulatory taskforce.
Commenting on the FCA review, Shanika Amarasekara, chief executive of the Finance and Leasing Association (FLA), described it as a "welcome intervention" to create better conditions for consumers.
She continued, saying: "We can see that regulators are moving in that direction since the Taskforce was set up by the FCA, the SRA, the Information Commissioner's Office and the Advertising Standards Authority, but we have yet to see how this Taskforce will deliver good outcomes for consumers.
"While it's good to see the FCA finally addressing the atrocious conduct in the claims sector, the existence of claims firms, and extent of their activity, is symptomatic of an underlying regulatory problem."