Thousands of mis-sold consumers could be hampered in their journey to justice as the FCA’s decision to plough ahead with fee caps for claims management companies leaves a question mark over their future.
ME Group CEO, Rob Cooper, believes protecting consumers should rightly be a priority, but the restrictions could have the opposite effect as firms struggle to make ends meet.
Under the new rules which came into force this month, the most consumers can be charged will depend on how much compensation they are due. For example, if the redress amount is below £1,500, consumers won’t be charged more than 30% of their claim, or £420, whichever is lower.
Speaking about the measures, Mr Cooper said: “We agree that protecting consumers should always be the main focus. However, there is a genuine concern that blanket caps could prompt even less options for people in the long term.
“The claims market is a very complex one, which often requires costly work in order to get the appropriate redress for mis-sold consumers.
“By capping fees, there is a real danger that much of these intricate and time-consuming claim types will not be taken on by CMCs simply because they’re not financially sustainable to do so. It could also encourage firms that are being complained about to act in a way that makes it economically unviable for a CMC to represent the complainant.
“Regulators should look at price capping as a last resort and give a chance to healthy competition and pricing that is reasonable for consumers, to prevail.
“The concern is these measures could very possibly drive many CMCs out of the market, leaving vulnerable consumers in the dark. Whilst consumers do have the option to represent themselves, there are many that lack the confidence or are simply put off by the erroneous rejection of their complaint by the firm they are complaining about.”
The rules mean CMCs must also divulge important information to consumers before entering a contract, such as giving more detail about how fees will be calculated and making sure they are aware of the free routes to redress available.
In a statement on the regulator’s website, Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said:
“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.
“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.”