Cap on claims management firms’ fees to save consumers £9.6m
The financial watchdog estimates that the proposed cap on fees could save consumers around £9.6 million a year.
Claims management companies (CMC), who charge thousands of pounds in fees to help consumers claim money back from companies seeking compensation for mis-sold products, will have their fees capped under new proposals for the Financial Conduct Authority.
At present, consumers can pay fees of as much as 40% of the compensation they receive to CMCs. This will now be capped at 30% for small claims of less than £1,500, while consumers receiving the maximum compensation of £50,000 would have their fees capped at 15%.
Before consumers sign a contract, claims firms will need to disclose key information on the free alternatives to make a claim and on how their fees are calculated.
The FCA cites the example of Mr and Mrs M who used a CMC to claim redress for a mis-sold investment. They signed an agreement to pay 48% of any redress they were awarded under the claim. Having found that it mis-sold the investment to the couple, their bank awarded them redress of £56,447.
Under the current rules, the couple had to pay £27,000 in fees. Under the proposed rules, they would have paid just over £10,000, saving them £17,000.
The cap will apply to all claims where a consumer is awarded financial compensation, except for PPI claims which are already capped at 20%.
Apart from PPI, the vast majority of financial services and products claims currently being managed by CMCs relate to four financial services or products: packaged bank accounts, loans, savings and investments, and pensions.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “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 are designed to address this.”
The consultation will run until 21 April 2021 and a policy statement is set to be published in the autumn.
What can I do if I’ve been mis-sold a financial product or service?