On 21 January 2021, the FCA published Consultation Paper 21/1: Restricting CMC charges for financial services and products claims (CP21/1).
Under the Financial Guidance and Claims Act 2018 (FGCA) Parliament transferred the regulation of claims management companies (CMCs) to the FCA and gave the regulator a duty to make rules about CMC fees for claims relating to financial products and services. In addition to meeting this statutory duty, the proposals in CP21/1 are designed to further the FCA’s statutory objective of protecting consumers and help promote effective competition in the interests of consumers. The proposals in CP21/1 will not apply to claims that relate to payment protection insurance (PPI). PPI claims are already subject to a cap under the FGCA and the regulator is not proposing to change that. In CP21/1, where the FCA refers to rules about CMC fees, unless it specifies otherwise, it is referred to fees charged in relation to claims about non-PPI financial products and services. The FCA will consider in due course whether to alter the existing cap on PPI fees.
In CP21/1 the FCA proposes to:
- Cap the fees that may be charged for claims management activities on claims that yield redress in relation to non-PPI financial products and services where the claims are within the redress system. For fees on non-PPI financial products and services claims where the cap does not apply, the FCA requires charges to be no more than reasonable.
- Improve the way CMCs managing claims about financial products and services disclose key information to consumers at the pre-contract stage, to help consumers make better-informed decisions about using CMC services.
- Make minor amendments to the Claims Management: Conduct of Business Sourcebook (CMCOB), Consumer Redress Schemes Sourcebook (CONRED) and the Perimeter Guidance Manual (PERG) to update and clarify existing rules.
In chapter 4 of CP21/1 the FCA sets out the proposed cap. The amount of the cap will depend on how much redress is awarded. The regulator sets out 5 bands of redress, each of which has a maximum percentage of consumer redress and a maximum total fee. On any one claim the total fee to the customer must not exceed the lower of the maximum percentage rate and the maximum total fee. Table 6 in chapter 4 shows the amounts applicable to each redress band.
In CP21/1 the FCA states that it wants to see CMC firms compete under the level of the proposed cap. The level of the cap is not intended to indicate what the regulator considers to be a fair price for all CMC services. Rather, it is the level the FCA thinks will provide an appropriate degree of protection from excessive charges. The FCA expects CMCs to charge fees that reflect the value they provide on the claims they manage and it is confident the level of the cap will allow them to do that.
The FCA will monitor the effectiveness of the rules through its ongoing supervisory work and plans to start an evaluation of the fee cap and disclosure rules 2 years after they are in force. The FCA will monitor the impact of the cap on business models, in particular whether CMCs move to new charging structures and, if they do, whether those charging structures provide fair value to consumers for the fees charged. The FCA does not propose to introduce new regulatory reporting requirements for CMCs at this stage.
The deadline for comments on CP21/1 is 21 April 2021.