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.
The cap applies to most claims where a consumer receives monetary redress from a financial services firm, either directly or through FOS, or, where a firm has gone out of business, from the FSCS. For other financial services claims, the rules require charges to be “reasonable”. These restrictions do not apply to PPI claims, which are already subject to the 20% cap set by Parliament.
The rules also 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.
According to the FCA, the changes are expected to save consumers £9.6 million a year and form part of the FCA’s ongoing work to drive a fundamental shift in industry mindset to stop consumer harm before it happens, and to ensure more consistent standards of protection.