The Financial Conduct Authority (FCA) has introduced restrictions on claims management companies (CMCs) to prevent excessive charging of fees to consumers owed compensation from financial services firms.
The cap on charges is dependent on how much redress they are due. If the redress amount is below £1,500, CMCs can charge consumers up to 30% of their claim, or £420, whichever is lower. According to the FCA, the changes are expected to save consumers £9.6 million a year and thousands of pounds on some individual claims.
The cap applies to most claims where a consumer receives monetary redress from a financial services firm, either directly or through the Financial Ombudsman Service. In case a firm has gone out of business, from the Financial Services Compensation Scheme (FSCS). For other financial services claims, the rules require charges to be reasonable, FCA said. These restrictions do not apply to PPI claims, which are already subject to the 20% cap set by Parliament.
The FCA said the rules require CMCs to disclose key information to consumers before entering a contract, such as giving more detail about how fees will be calculated and making sure they are aware of the free routes to redress available. This means that if a consumer personally makes a complaint or compensation claim to the Ombudsman Service or the FSCS they are entitled to keep all redress awarded.
“Our rules protect consumers from losing a significant amount of their compensation in excessive fees, particularly when there are ways for them to make claims without incurring any fees,” said Sheldon Mills, FCA executive director of consumers and competition. “The changes are part of our ongoing work to drive a fundamental shift in industry mindset so we can stop consumer harm before it happens, and to ensure more consistent standards of protection.”
