Claims firm users set for fee cap on redress payments
Customers who use Claims Management Companies (CMCs) to help them receive money owed can currently face fees of 40%, meaning the actual amount of redress is lower than expected.
But the City regulator, the Financial Conduct Authority (FCA) is proposing to bring in a CMC fee price cap, meaning they won’t be able to charge more than 15% – 30% of the redress amount.
The proposals are set to save customers £9.6m a year and would apply to all claims where a user is awarded monetary redress.
The only exception relates to PPI claims which are already subject to a 20% redress cap set by Parliament. The FCA said it does not propose to change this amount.
Fee cap proposals
The FCA has proposed the following price cap bands:
- Band 1 – redress up to £1,499 – max 30% charge (£420)
- Band 2 – redress between £1,500 and £9,999 – max 28% charge (£2,500)
- Band 3 – redress between £10,000 and £24,999 – max 25% charge (£5,000)
- Band 4 – redress between £25,000 and £49,999 – max 20% charge (£7,500)
- Band 5 – redress from £50,000 – max 15% charge (£10,000).
As an example, a couple used a CMC and they were told that due to their mis-sold investment, they would be awarded £56,447. However, with the CMC charging a 48% fee (including VAT), they paid £27,000 in fees to the firm.
Under the proposed changes, the couple would have paid £10,000, saving them £17,000 in fees.
CMCs would also be required to disclose key information such as details of how fees will be calculate and they would be required to signpost customers to free alternative routes to redress, before a contract is signed.
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.”
The majority of CMCs operate within packaged bank accounts, loans, savings and investments, and pensions.
The consultation is open until 21 April 2021 and a further statement is expected to be published in Autumn 2021.