The Financial Conduct Authority (FCA) has proposed an introduction of a price cap on the fees claims management companies (CMCs) charge consumers.
According to the FCA, some consumers currently pay fees of more than 40% of the redress they receive. The proposed cap restricts this, and will mean CMCs won’t be able to charge more than 15-30%, depending on how much the consumer is due.
This will see some consumers saving several thousand pounds on the fees they pay to CMCs. 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.
The regulator is also proposing that CMCs will be required to disclose key information, such as giving consumers more information about how the fees they pay will be calculated, with better signposting to the free alternative routes to redress that are available. This must be disclosed to consumers before they enter into a contract.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “We took over regulation on CMCs in April 2019, and have been proactively supervising the sector. 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 is open until 21 April 2021.
Credit Strategy’s analysis of complaints sent to the Financial Ombudsman Service shows that CMCs drove up complaints to alternative lenders throughout last year.