The Financial Conduct Authority (FCA) has been accused of a “massive overreach” following letters sent to law firms and claims management companies (CMCs) requesting batches of information under the new Digital Markets, Competition and Consumers law.
The FCA sent letters in August, seen by City AM, requesting information on the law firms’ motor finance services, including copies of contracts, an explanation of the consumer’s journey, and details of how the firm will determine fees.
A source told City AM that “the information they are asking for clearly falls under the remit of the Solicitors Regulation Authority (SRA)”.
In the letter, the watchdog didn’t say it was working with the SRA; rather, it made the SRA aware of its interest in this matter.
The legal regulator acknowledged to City AM that it was working with the FCA as the bodies teamed up in July to issue warnings to law firms and claims management companies (CMCs) over ‘poor practices’ in motor finance claims.
A spokesperson for the SRA said: “Solicitors and firms must co-operate with the other regulators.”
“We’d encourage firms to share as much of the requested information as possible with the FCA so that we can all build a comprehensive picture on what is happening in the sector, and make sure it is working in the best interests of consumers,” they added.
Since the letters were sent out in August, the FCA has, for the first time, used its powers to require nine law firms to provide information about their exit fees.
This comes a week after the Treasury revealed that the SRA, along with other bodies, will lose its anti-money laundering (AML) powers as the government plans to consolidate all such authority under the FCA.
The decision has raised concerns within the legal and accountancy sectors, as the FCA has not previously regulated these industries.
While, the payment industry has also sounded an alarm on the incorporation of the Payment Systems Regulator (PSR) into the ballooning remit of the FCA, raising concerns that the same issues would remain “under a different roof”.
Nobody is happy
This fresh row also comes as the financial watchdog faces mounting backlash from the City’s banking giants over its consumer redress scheme.
Lloyds Banking Group, which raised its provisions to £2bn earlier this month, has led a chorus of calls claiming the FCA has steered away from the legal clarity provided by the Supreme Court in its August ruling.
Close Brothers and Barclays have also criticised the FCA over concerns that compensation would not be “proportionate”.
The scheme is expected to hand the industry an £11bn bill, according to the FCA, and concern has been raised that compensation would be “disproportionate”.
Ravi Nayer, financial services redress and litigation funding partner at BCLP, told City AM: “The FCA has stated that their proposed compensation scheme will not please everyone.
“But that is to rather understate the position.”
Lack of engagement
Nayer said there was a major lack of “any genuine engagement with the reality that millions of affected consumers have signed up to terms with solicitors’ firms in respect of which the cooling off period of those engagements has long since expired”.
The FCA’s letter raises concerns about the fairness and transparency of terms in claims management contracts and the harm when a consumer wishes to cancel their contract but faces an outsized exit fee.
But critics argue the FCA has failed to adequately engage with the issue before it exploded, and instead is now focusing on termination fees in already-signed agreements rather than addressing the mass sign-ups.
Despite this, the FCA has stepped up efforts to tackle CMC sign-ups in the motor finance scandal, with its target on CMCs long before the Supreme Court judgment was handed down.
A spokesperson for the FCA said: “People deserve the facts before choosing to sign up with a CMC or law firm and shouldn’t face unreasonable fees if they decide to cancel.
“We’re acting where we see bad practice – including having hundreds of misleading CMC ads removed or amended – and looking closely at cancellation fees, along with the Solicitors Regulation Authority. We are also running an awareness campaign to ensure consumers can make informed choices.”