Since the FCA took over regulation of CMCs on 1 April 2019 it has reviewed over 200 CMC adverts in various media and found widespread poor-practice in CMCs
Claims management companies (CMCs) must do more to ensure their promotions do not mislead potential customers according to the Financial Conduct Authority (FCA). Since the FCA took over regulation of CMCs on 1 April 2019 it has reviewed over 200 CMC adverts in various media and found widespread poor-practice in CMCs.
The FCA has introduced a number of new rules in relation to financial promotions issued by CMCs to ensure that CMCs provide information to consumers that is fair, clear and not misleading. These rules require CMC firms to:
identify themselves as a claims management company
prominently state if a claim can be made to a statutory ombudsman / compensation scheme without using a CMC and without incurring a fee
include prominent information relating to fees and termination fees which the customer may have to pay if a firm uses the term ‘no win, no fee’ or a term with similar meaning
These rules are designed to help consumers make an informed choice whether to use the services of a CMC.
Jonathan Davidson, Executive Director of Supervision – Retail and Authorisations at the FCA, said:
‘Many CMCs play a significant role in helping consumers to secure compensation. But CMCs using misleading, unclear and unfair advertising practices to get business is completely unacceptable. We won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising.
‘Firms should also understand that we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation.’
The FCA has reviewed all kinds of CMCs’ financial promotions including website pages and social media. Examples of bad practice include that firms:
fail to identify themselves as a claims management company
fail to state, that the customer could make a claim to a statutory ombudsman or statutory compensation scheme, such as the Financial Ombudsman Service, without using the services of the firm, and without paying a fee
appear to give consumers the impression that they would get a better outcome if they use the services of the CMC
use the term ‘no win no fee’, but do not set out the fees that the customer must pay
include only examples of case studies where the compensation provided to consumers is very high, even though the average amount received by consumers is considerably lower
include important information in small font or in a position that is difficult to see, when it should in fact appear prominently in a promotion
The FCA has been taking action on the back of these findings, including:
issuing a Dear CEO letter on 4 June 2019 to remind CMCs of our financial promotions rules, amongst other matters
using our formal financial promotions banning power where a CMC appeared to be using a celebrity endorsement without the individual’s permission
highlighting our concerns to CMCs, resulting in many firms amending or withdrawing their adverts
visiting CMCs where we consider that their financial promotions are particularly poor
If the FCA concludes that firms have used very poor promotions, it is unlikely that they meet the Threshold Conditions for continuing authorisation. When the FCA reaches this determination, it will also set out what actions the firm needs to take and by when to avoid having to close down.
Source: Company Press Release