The Financial Conduct Authority (FCA) has published proposals to introduce a price cap on the fees claims management companies (CMCs) charge their customers in relation to claims for financial products and services.
Some consumers currently pay fees of more than 40% of the redress they receive. The proposed cap restricts this, and will mean CMCs won’t be able to charge more than 15-30% depending on how much redress a consumer is due. This will see some consumers saving several thousand pounds on the fees they pay to CMCs.
The FCA said the cap will 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.
As part of the proposals, CMCs will be required to disclose key information, such as giving consumers more information about how the fees they pay will be calculated and better signposting to the free alternative routes to redress available.
It added this information must be disclosed to consumers before they enter into a contract, to help consumers make better-informed decisions about using CMC services.
Apart from PPI, the vast majority of financial services and products claims currently being managed by CMCs relate to four particular financial services or products: packaged bank accounts, loans, savings and investments, and pensions.
There is currently a PPI price cap for CMCs, which is 20% of the redress paid to the consumer. Due to the period of change the PPI market is undergoing the FCA is not proposing to change it at this time. Therefore, claims that relate to PPI will remain capped at 20% and will be unaffected by these proposals.
The consultation is open until 21 April 2021. A policy statement is expected to be published in Autumn 2021. If a fee cap is confirmed the FCA will monitor its effects on the CMC market and its consumers.
Sheldon Mills, executive director of Consumers and Competition at the FCA, said: “We took over regulation of CMCs in April 2019, and have since been proactively supervising the sector. When working well, CMCs can provide useful services for consumers.
“However, consumers can experience harm when they do not understand the nature of the service CMCs provide and where they are charged excessive fees. The proposals we have announced today are designed to address this. We estimate that the proposed cap on fees could save consumers around £9.6m a year.”