'Excessive' claims management fees set to be capped - and it could save consumers thousands
A price cap on the 'excessive' fees claims management companies charge customers has today been proposed by the financial regulator in a bid to save people thousands - and the move has been welcomed by MoneySavingExpert.com founder Martin Lewis.
The Financial Conduct Authority (FCA), which has put forward the plans, wants to prevent claims firms from taking no more than a 15% to 30% cut of any redress won on consumers' behalves. Currently, some firms take a slice of more than 40% when they put in claims for mis-sold loans or pensions, for example. That's despite it usually being simple to reclaim yourself, for free.
We have guides on how to Reclaim Packaged Bank Account Charges, Bank Charges and Payday Loans, along with various other products, for free, without using fee-charging claims companies.
Cap will apply to most redress claims
It's proposed that the new cap will apply to all redress claims where cash is awarded, apart from PPI claims which are already subject to a 20% cap set by parliament. The FCA says this will save some several thousand pounds, with total expected savings expected to be £9.6 million a year.
Under the proposals, claims management companies will also be forced to tell consumers - before a contract is entered into - how the fees they pay will be calculated and signpost free alternative routes to redress available.
A consultation on the price cap is now open until 21 April and the FCA and expects to confirm its plans in Autumn 2021, with a cap to follow after. If the cap gets the go-ahead, the FCA will monitor its impact on the market and on consumers.
'Definitely the right move'
Martin has welcomed the move saying it's "definitely the right move". He tweeted the following this morning:
What does the FCA say?
Sheldon Mills, executive director of consumers and competition at the FCA, adds: "We took over regulation of claims management companies (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."
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