Regulators, industry step up scrutiny on motor finance claims market

4th Feb 2026 12:02

(Sharecast News) - UK regulators and industry bodies stepped up scrutiny of the motor finance claims market on Wednesday, as preparations continued for a major consumer redress scheme, amid warnings about excessive fees, misleading marketing and risks to investment confidence.

The Financial Conduct Authority and the Solicitors Regulation Authority issued a joint warning to claims management companies and law firms involved in motor finance commission claims, focusing on termination and exit fees charged to consumers.

They said clients must be able to end an agreement or switch representatives without facing unfair charges, and that any fees must be reasonable and reflect work actually carried out.

Following regulatory intervention, two FCA-regulated claims firms had already agreed to amend their termination fee policies, protecting around 70,000 consumers from excessive charges.

The regulators also reiterated that any termination fees must be clearly set out before work starts and charged strictly in line with the original agreement.

They warned firms that further action would follow where standards were not met.

Alongside that, the FCA said it was preparing to launch an advertising campaign warning consumers about scams linked to motor finance compensation and reminding them that they did not need to use a claims firm or law firm to seek redress, and that doing so could significantly reduce any compensation received.

At the same time, the Finance and Leasing Association has urged the FCA to design a more targeted and proportionate compensation scheme, cautioning that an overly broad approach could undermine confidence in UK lending markets.

The proposed scheme would cover regulated motor finance agreements taken out between April 2007 and November 2024 where commission was paid to brokers.

According to FCA estimates, around 85% of the 14 million eligible consumers could participate, implying compensation payments of £8.2bn and total costs to firms, including implementation, of about £11bn.

Speaking at a parliamentary event, the FLA said the scale and uncertainty of potential liabilities were already weighing on investor sentiment, with some investors reassessing their exposure to the sector.

According to AM, the trade body linked the issue to wider concerns about the UK's litigation environment and the role of the Financial Ombudsman Service, arguing that its "fair and reasonable" approach created unpredictability for firms.

The government had consulted on reforms to better align the Ombudsman's decisions with FCA rules, changes the industry hopes will be put on a statutory footing.

Industry figures also reportedly criticised incentives that they said had fuelled speculative complaints, including the historical imbalance between fees paid by firms and those paid by professional representatives.

While the Ombudsman introduced charges for claims firms in April last year and reduced respondent fees in certain cases, the sector argued that the UK remained unusually exposed to claims activity compared with other jurisdictions.

Reporting by Josh White for Sharecast.com.