FCA and SRA issue warning on motor finance commission claims

The FCA and the SRA have issued a joint warning to claims management companies and law firms who are involved in motor finance commission claims. The warning follows a surge in activity in this area, as well as the increasing regulatory focus on how these claims are being marketed and managed.

Whilst relating to a specific type of claim, it is indicative of the approach taken by the two regulators and will have broader applicability. At its core, the message is simple: high-volumes of claims must not dilute professional obligations. The warning broadly covers the following concerns:

• Multiple representation
• Termination fees
• Acting in the client’s best interests

Multiple representation

One of the key concerns highlighted is the number of times a consumer is instructing multiple firms for the same claim. Individuals appear to have been onboarded without proper checks as to whether they were already represented elsewhere. It seems consumers might be taking a ‘scattergun’ approach – sending their claim to multiple parties, in the hope that one of them will result in a payment. Proper onboarding is not a formality - it is a core compliance safeguard. Failing to establish whether a client already has representation exposes consumers to unnecessary costs and creates ground for disputes and complaints.

Termination fees

The regulators have also highlighted the reasonableness of termination rights and exit fees. Clients are entitled to change representatives, but any termination fees must be reasonable, proportionate to work actually done, and clearly set out in the original agreement. The concern is that clients are not being properly advised about potential costs or that the exit charges are disproportionate.

The issue is not usually the existence of a termination fee itself, but whether it was properly explained, appropriately documented and reasonably structured. Clear drafting and proper client care documentation remain the best protection.

Acting in the client’s best interests

Both the FCA and SRA reiterate the fundamental principle that firms must act in their clients’ best interests. Of course, this is not a new concept - but in a mass-claims environment, the concern is these duties might be more easily overlooked.

What this means for professionals

For solicitors operating in this space, this warning is a clear signal that regulatory scrutiny is increasing. As a result, we are likely to see more:

• Regulatory investigations
• Client complaints
• Disputes about fees, retainers and termination provisions

So what can solicitors do to avoid falling foul? The key points are:

• Robust onboarding procedures
• Clear contractual documentation
• Transparent fee structures
• Proper records of advice and client consent
• Strong internal compliance processes

Increased exposure for solicitors

The joint regulatory stance may also see an increase in claims directed at solicitors themselves. Whilst such complaints are unlikely to be significant in value, they may be used to support wider criticisms. As regulators draw clearer lines around expected standards of conduct, those standards quickly become the benchmark against which professional negligence claims are assessed.

Comment

With a possible industry-wide redress scheme still under consideration and continued regulatory focus on motor finance claims, this is not a short-term issue. The claims environment will continue to generate disputes, complaints and litigation - and professionals involved in this sector will increasingly find themselves having to justify their processes, structures and decisions. Firms should treat this warning as an early signal rather than a retrospective criticism.