High fees charged by claims management companies (CMCs) are to be capped
Consumers targeted by CMCs over payment protection insurance and similar claims are often hit by rip-off fees of as much as 40% of any compensation. The Financial Conduct Authority has reported that, since 2011, over £21bn has been paid out to consumers for Payment Protection Insurance (PPI) claims alone. The Ministry of Justice (MoJ) estimates that CMCs may have taken as much as £3.5bn in charges since that date. For the year ending March 2015, more than 200,000 new PPI claims were received by the Financial Ombudsman Service, of which 79% were lodged by CMCs on behalf of consumers, and around 20% came from consumers directly.
MoJ proposals launched last week would cap the completion fee at 15% for bulk claims such as mis-sold payment protection insurance, and cap the overall charge for claims worth more than £2,000 at £300. The maximum completion fee for other types of financial claims would be 25% of the final amount of compensation awarded. CMCs would also be banned from charging upfront fees for financial claims before any work is carried out, from charging cancellation fees of more than £300 for bulk claims, and from charging referral fees for introducing a consumer to a third party.
Justice Minister Lord Faulks says: “Some claims management companies charge as much as 40% of the final compensation awarded for very little work. This has got to stop.”
Kevin Rousell, head of the Claims Management Regulator, says: “We want to make sure that people who use CMCs can be confident they are getting value for money and are not being exploited.” The regulator has cancelled more than 1,000 CMC licences since 2010.
The MoJ is holding an eight-week consultation.
