The Financial Conduct Authority has announced proposals for all claims management companies to be subject to a cap on the level of fees they can charge their customers.
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 of 20% of the compensation paid in any individual case.
The new proposals will apply to all non-PPI cases, and will involve a more complex structure than the simple 20% PPI cap. Instead a system of ‘redress bands’ will apply as follows:
- Where the compensation obtained by the customer is less than £1,500, the fee cap will be 30% of the compensation amount, subject to an over-riding maximum limit on the fee of £420
- If the compensation amount is between £1,500 and £9,999, the cap will be 28%, subject to an over-riding maximum of £2,500
- If the compensation amount is between £10,000 and £24,999, the cap will be 25%, subject to an over-riding maximum of £5,000
- If the compensation amount is between £25,000 and £49,999, the cap will be 20%, subject to an over-riding maximum of £7,500
- If the compensation amount is £50,000 or more, the cap will be 15%, subject to an over-riding maximum of £10,000
- For £18,000 of compensation, a CMC can charge 25% of this as their fee, which is £4,500.
- £45,000 of compensation falls into the 20% band, which gives a figure of £9,000, however here the over-riding maximum cap would kick in and the CMC would not be able to charge more than £7,500
The cap will apply to the total cost of claims management services provided to the customer. If more than one service is provided, the total charge for all of those services will not be permitted to exceed the cap.
CMCs will need to provide their customers with illustrative fee calculations that show the fees that would be paid for the three redress bands that are closest to the amount of redress the customer is likely to get for their claim.
The FCA invites replies to its proposals until April 21 2021. A policy statement setting out the final rules is expected to be published in Autumn 2021.
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 £9.6 million a year.”