The Claims Management Regulator at the Ministry of Justice (MoJ) has published the results of its consultation into the level of fees that can be charged by claims management companies (CMCs).
Following the consultation, conducted last year, the regulator is pressing ahead with plans to introduce new rules on April 1 2018. These rules will:
- Prohibit CMCs from charging upfront fees on any financial claim, including all payment protection insurance (PPI) claims
- Prevent consumers being charged any fees when they do not have a relationship or relevant policy with the lender in question
- Require CMCs to ensure that all cancellation charges are reasonable
- Where cancellation charges apply, require companies to provide consumers with an itemised bill setting out precisely what the cancellation charges relate to
The MoJ has decided that it is unable to impose any form of charge cap on CMCs within the current legislative framework. However, the The Financial Guidance and Claims Bill has commenced its passage through Parliament. This Bill will not only transfer regulation of claims management activity to the Financial Conduct Authority (FCA), but will also impose a duty on the FCA to make fee capping rules in relation to financial services claims.
More than half of the 136 responses to the consultation were received from CMCs. Most companies supported a ban on upfront fees, and on banning fees where no relationship with the lender exists, if not on imposing any form of charge cap.
Most of the CMCs that responded said that caps of 15% (including VAT) and £300 for PPI and packaged bank account claims would lead to them leaving the claims management marketplace.
CMCs did however generally support a cap on cancellation fees for contracts cancelled after the 14 day ‘cooling off’ period; and a cap of 25% (including VAT) for all other financial claims.
In its response, the trade association, the Professional Financial Claims Association, confirmed that its members are already prohibited from charging an upfront fee for a PPI claim.
The responses from lenders, insurers, consumer bodies, solicitors’ firms and other organisations generally supported all of the proposed measures, including both bans on fees being charged in certain circumstances, and the imposition of price caps.
In summary, CMCs need to be ready to comply with the new rules on when fees can be charged, and on explaining their cancellation fees, from April next year. They also need to be prepared for some form of price cap to be imposed in the future, along with the generally stricter regulatory environment that will inevitably follow when the FCA takes over as their regulator.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.