The Financial Conduct Authority has today proposed a new price cap on the fees that claims management companies charge customers in claims for financial products and services.
Currently, some claimants pay out 40% of the redress they receive in fees. Under the new proposals, CMCs would not be allowed to charge more than 15%-30%, depending on the amount a consumer is due. The cap would apply to all claims where a consumer is awarded monetary redress, apart from PPI claims, which are already subject to a cap set by parliament.
In addition, CMCs will be required to give consumers more information about how the fees they pay will be calculated and better signposting to free alternative routes to redress. This information would have to be disclosed to consumers before they enter into a contract.
Sheldon Mills, executive director of consumers and competition at the FCA, said: ’We took over regulation of CMCs [from the Ministry of Justice] in April 2019, and have since been proactively supervising the sector. Consumers can experience harm when they do not understand the nature of the service CMCs provide and where they are charged excessive fees.
’We estimate that the proposed cap on fees could save consumers around £9.6m a year.’
Apart from PPI, most claims managed by CMCs in this sector relate to four services or products: packaged bank accounts, loans, savings and investments, and pensions.
The existing PPI price cap for CMCs is 20% of the redress paid to the consumer, which the FCA said will continue.
The plans have been put out for consultation until 21 April, with a policy statement expected in the Autumn. The proposals do not affect CMC-run claims outside the financial services sector.