The Financial Conduct Authority (FCA) has issued a fresh warning to approximately 12 million motorists in the UK who are eligible for compensation related to car finance commissions. The regulator is cracking down on claims management companies and law firms that use potentially misleading advertisements to persuade drivers to sign up for compensation services.
Background on the Compensation Scheme
Under plans announced earlier this year, around 12.1 million eligible car finance agreements could qualify for compensation. Successful claimants are expected to receive an average payment of £829. The compensation scheme aims to address unfair commissions charged on car finance agreements, potentially resulting in billions of pounds being paid out to consumers.
FCA Concerns Over Misleading Adverts
The FCA fears that some firms are attempting to profit from the scandal by presenting paid-for promotions as independent money-saving advice. The regulator has identified a growing number of adverts featuring individuals who appear to offer impartial guidance without clearly disclosing that they are promoting a business. Some adverts also fail to inform motorists that they can file a complaint themselves for free, without using a claims management company or law firm.
The watchdog warned that some promotions misuse logos, imagery, and branding linked to well-known companies, media organisations, public bodies, and high-profile figures to create a false impression of endorsement. In one case, the FCA intervened after a claims management firm used edited and unauthorised video clips of personal finance campaigner Martin Lewis to make misleading claims about potential compensation payments. Another firm has already agreed to remove all of its adverts following action by the regulator.
Impact on Consumers
Alison Walters, director of consumer finance at the FCA, stated: "Accessing compensation is free, and people don't need to use a claims management or law firm to get what they're owed. If they choose to, it should be a genuine and well-informed choice, not one made because of a misleading advert."
The FCA warned that motorists who use a claims management company or law firm could lose more than 30% of any compensation they receive in fees. It also cautioned consumers against signing agreements with multiple firms, which could leave them facing several sets of charges.
Taskforce to Tackle Poor Practice
The regulator said it has serious concerns about conduct within parts of the motor finance claims industry and has launched a joint taskforce with regulatory partners to tackle poor practice. Among the issues highlighted are unwanted marketing texts and emails, consumers being signed up without their knowledge or consent, and firms making it difficult for customers to leave agreements. The watchdog said some motorists have unknowingly entered contracts after clicking on "free compensation checker" adverts on social media. Other complaints include firms aggressively pursuing fees, charging unfair exit costs, and failing to explain that consumers can take complaints to an ombudsman free of charge.
The FCA stressed that anyone who believes they were mis-sold car finance can complain directly to their lender without paying a third party.
Legal Challenge and Next Steps
The compensation scheme itself remains subject to a legal challenge, delaying any potential payouts. However, the regulator said it will defend the scheme and believes it remains the best way to resolve what has become one of the UK's biggest consumer finance scandals.
For motorists who have already signed up with a claims management company or law firm, the FCA said they should complain directly to the firm if they believe they were misled, signed up without consent, or charged unfair fees. The watchdog is publishing a template complaint letter to help affected consumers challenge firms where concerns arise. It added that people who have been treated unfairly may be entitled to leave agreements without penalty and could potentially be owed additional compensation.
