The Financial Conduct Authority (FCA) is proposing putting a price cap on the fees claims management companies (CMCs) charge their customers in relation to claims for financial products and services, potentially saving consumers some £9.6m a year
The regulator says research shows some consumers currently pay fees of more than 40% of the redress they receive. The proposed cap restricts this, and will mean CMCs will not be able to charge more than 15%-30% depending on how much redress a consumer is due.
The FCA said this would result in significant savings for some individuals. It gave as an example a couple who used a CMC to claim redress for a mis-sold investment, agreeing to pay 48% (including VAT) of any redress they were awarded.
In this instance, the bank awarded them redress of £56,447 to put them back in the position they would have been in had they not been mis-sold the investment.
Under the current rules, the couple had to pay £27,000 in fees, whereas under the proposed rules they would have paid just over £10,000.
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.
This information must be disclosed to consumers before they enter into a contract, to help consumers make better-informed decisions about using CMC services.
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.’
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.
The consultation on the changes is open until 21 April and the FCA expects to publish a policy statement in Autumn 2021.