New restrictions on claims management companies came into effect on Tuesday morning, to prevent them from charging “excessive fees” to consumers owed compensation from financial services firms.
Under new Financial Conduct Authority (FCA) rules, the maximum consumers could be charged would depend on how much redress they were due.
The FCA said that if the redress amount was below £1,500, consumers could only be charged a maximum of 30% of their claim, or £420, whichever was lower.
It said the changes were expected to save consumers £9.6m a year, and “thousands of pounds” on some individual claims.
The cap would apply to most claims where a consumer is awarded monetary redress from a financial services firm, either directly from a firm, via the Financial Ombudsman Service, or if a firm had gone out of business, from the Financial Services Compensation Scheme (FSCS).
For other financial services claims, the rules required charges to be “reasonable”.
The FCA said the new rules did not apply to payment protection insurance (PPI) claims, which were already subject to a 20% cap as set by Parliament.
It said the rules meant claims management companies now also needed to disclose key information to consumers before entering a contract, such as giving more detail about how fees would be calculated, and making sure they were aware of free routes to redress, such as going directly to the Ombudsman Service or the FSCS.
“Our rules protect consumers from losing a significant amount of their compensation in excessive fees, particularly when there are ways for them to make claims without incurring any fees,” said the FCA’s executive director of consumers and competition, Sheldon Mills.
“The changes are part of our ongoing work to drive a fundamental shift in industry mindset so we can stop consumer harm before it happens, and to ensure more consistent standards of protection.”
