Out-Law News | 26 Aug 2019 | 4:34 pm | 1 min. read
The UK’s Financial Conduct Authority (FCA) has said that claims management companies (CMCs) still need to do more to ensure their advertising promotions do not mislead potential customers.
FCA executive director of supervision for retail and authorisations Jonathan Davidson said the FCA “won’t hesitate to take action where we consider that customers are being misled or otherwise treated unfairly by poor advertising”.
The FCA took over regulation of CMCs on 1 April 2019. A review of adverts in the sector has identified “widespread poor practice” including failure by firms to identify themselves as a CMC; failing to state that customers could make a claim to a statutory ombudsman or statutory compensation scheme without paying a fee; and including only case studies where compensation is high, even when the average compensation received is much lower.
The examples have prompted the regulator to introduce new rules in relation to promotions issued by CMCs.
The new rules require CMCs to identify themselves as a claims management company; prominently state if a claim can be made to a statutory ombudsman or compensation scheme without using a CMC and without incurring a fee; and 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.
The rules are aimed at making sure consumers can make an informed choice about using CMCs’ services.
Davidson 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.
“Firms should also understand that we will take their compliance with our rules on financial promotions into account when considering applications for full authorisation,” Davidson said.
The FCA said it would continue to take action to address poor practice by CMCs. It issued a ‘Dear CEO’ letter (4 page / 67KB PDF) in June setting out its expectations, and said it has also used its power to ban adverts where a CMC appeared to be using a celebrity endorsement without the individual’s permission. It has also raised concerns with CMCs and visited firms if it considered their financial promotions were particularly poor.
The FCA said firms using “very poor promotions” would be unlikely to meet the threshold conditions for continuing authorisation. Firms would be given actions to take and a deadline to meet in order to avoid having to close down.
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