Ahead of a critical Supreme Court ruling on Friday, both the Financial Conduct Authority (FCA) and the Solicitors Regulation Authority (SRA) cautioned that consumers could lose up to 30 per cent of their potential compensation by signing up to unnecessary paid-for legal services.
The warning comes as regulators scrutinise marketing practices and customer handling by firms rushing to capitalise on what could become one of the UK’s largest ever redress exercises.
The Supreme Court is due to rule on whether motor finance agreements with undisclosed commission arrangements were unlawful, following an October 2023 Court of Appeal decision which found that undisclosed commissions rendered agreements unfair. If the judgment is upheld, it could trigger billions of pounds in payouts to borrowers and pave the way for a formal redress scheme.
In anticipation of this, the FCA has already intervened in 224 misleading promotions over the past year, while the SRA has launched 89 investigations into 73 law firms over possible breaches related to high-volume claims.
Regulators are particularly concerned that some firms are advertising inflated and speculative payout figures, failing to disclose the availability of free alternatives, and not being transparent about fees or exit clauses.
Sheree Howard, executive director of the FCA, said: “We’ve seen law firms and claims management companies advertising highly speculative figures, so we are warning them of our expectations when it comes to drumming up clients for motor finance commission claims. If we introduce a redress scheme for motor finance, we will aim to make it easy for people to take part.”
Paul Philip, chief executive of the SRA, added: “Where we find cases where firms are not acting in the best interest of their clients, we will investigate and take action.”
The FCA confirmed it will decide within six weeks of the Supreme Court judgment whether to propose a statutory redress scheme, which would enable affected consumers to pursue compensation directly and without charge.
Under the joint guidance, law firms and claims handlers must now clearly inform clients about the potential for a free, regulator-led compensation route, and must disclose full costs and charges if consumers choose to engage their services.
The case has already rocked London’s financial sector, with several listed lenders seeing their share prices slump amid fears of massive compensation liabilities. Some estimates suggest total industry exposure could exceed £10 billion.
For now, regulators are urging the public to wait for clarity before entering fee-based claims contracts and have advised consumers to seek out independent, transparent information before proceeding.
