In particular, Mr Rathi urged the Government to investigate how offshore funds are seeking to bankroll firms attempting to bring claims on behalf of drivers.
A decision two years ago by the FCA to launch a review of motor finance deals triggered a gold rush to sign up drivers who may be able to claim compensation from banks and other lenders.
Law firms and claims management companies (CMCs) have launched a marketing blitz to lure in clients with no-win, no-fee promises, with some lawyers attempting to take up to 40pc of payouts.
Mr Rathi said that the watchdog had seen “serious and unacceptable harm” by some CMCs and the law firms supporting them. Unwanted texts and emails from these firms are also a growing problem, he added.
He said that while the FCA has taken steps against some companies, there is clear “urgency” for further action from the Government and Parliament.
The watchdog has already taken down more than 800 misleading adverts from CMCs and forced three firms to reduce their fees. It has also blocked four more from taking on new clients.
In January, the FCA took the unprecedented step of announcing an investigation into the Claims Protection Agency (TCPA), which promised to recover thousands of pounds for victims of alleged car finance mis-selling in adverts featuring Tyson Fury, the heavyweight boxer.
The watchdog said it had “concerns about its advertising and sales tactics in relation to potential motor finance claims”.
TCPA said that it had fully co-operated with the FCA in relation to its investigation, which it believes will exonerate the company’s position.
“There are real concerns around how consumers have been signed up to claims management companies,” Ms Pritchard said on Tuesday.
“Some consumers [are] saying that they didn’t provide consent to do so, some having signed up for multiple CMCs, which is resulting in bad outcomes for consumers because consumers that will lose some of the compensation that they are owed.”