New rules mean that the maximum fee claims firms can levy will depend on how much redress is owed. So for those who receive up to £1,499 in compensation, claims firms can charge no more than 30 per cent, which comes to a maximum total fee of £420.
This percentage then falls as the redress increases, so for those who obtain between £1,500 and £9,999, claims firms can only charge up to 28 per cent. This drops to 25 per cent for redress of £10,000 to £24,999, and 20 per cent for redress of £25,000 to £49,999. In cases in which more than £50,000 is awarded, the claims firm can charge a maximum of 15 per cent of the payout.
The regulator said that the new caps would restrict the ‘excessive’ fees levied by some claims firms, arguing that it would save consumers a total of £9.6m a year.
The cap applies to most claims where a customer is awarded redress from a financial services firm, whether that comes direct from the firm, via the Financial Ombudsman Service, or from the Financial Services Compensation Scheme if the transgressor has gone bust. They do not apply to PPI claims, which are already subject to a 20 per cent cap.
The new rules also mean claims firms are required to disclose key information at the outset, before entering into a contract with a potential claimant. These include details about how the fees are calculated, and ensuring that the customer understands the free routes to redress available to them.
Sheldon Mills, executive director of consumers and competition at the FCA, said the cap would protect claimants from losing “a significant amount” of any compensation in excessive fees, particularly when they may be able to make claims for free anyway.
He added: “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.”
