The Government has unveiled plans to cap the fees claims management companies can charge consumers as part of a radical overhaul of the sector.
However, advisers have been left disappointed that the majority of the proposals – including a ban on claims firms taking any fees where no relationship is found between a consumer and a lender – will be limited to complaints about payment protection insurance and packaged bank account misselling.
The reforms, published for consultation today by the Ministry of Justice, place a heavy emphasis on discouraging large-scale claims affecting banks and building societies.
The MoJ wants to cap the maximum completion fee at 15 per cent (including VAT) of the final compensation awarded for PPI and PBA claims with a lender, where the net value of all relevant claims is £2,000 or less.
In addition, the MoJ proposes limiting the overall charge for PPI and PBA claims worth more than £2,000 in total to £300.
Similarly, a maximum cancellation fee of £300 has been proposed for bulk claims when a customer ends their contract with a CMC after the initial 14-day “cooling off” period.
At the same time, CMCs making PPI or PBA complaints will be prohibited from receiving or making any financial payment to a third party.
A proposal to ban CMCs from taking a fee where there is no relationship between a customer and the firm – designed to discourage “speculative” complaints – will not be extended beyond PPI and PBA sales under the plans.
For non-PPI and PBA claims – which includes complaints linked to pensions, mortgages and investments – the MoJ proposes capping fees at 25 per cent (including VAT) of the final compensation amount. It will also ban CMCs from charging upfront fees before carrying out any work.
The MoJ says the proposals aim to “protect consumers from high charges and to reduce the level of speculative claims lodged with lenders and the Financial Ombudsman Service”.
Justice minister Lord Faulks says: “We want to do all we can to get consumers a fairer deal.
“Some claims management companies charge as much as 40 per cent of the final compensation awarded for very little work. This has got to stop, and this Government is taking action to make sure people aren’t being taken advantage of by these greedy practices.”
However, Apfa director-general Chris Hannant says the Government should go further to discourage CMCs from making speculative complaints against advisers.
He says: “Claims management firms are a menace and their business model is just hurl enough mud and hope it sticks. It wastes people’s time and it costs consumers and the industry huge amounts of money. It’s good that the Government have recognised the need to clamp down on vexatious claims but you can get those in any walk of life.
“The claims management companies should not get a free ride for wasting everyone’s time, and we have argued they should pay a fee to the Ombudsman if they are going down that route to incentivise them to only bring cases that have merit.
“Advisers are subject to speculative claims in other areas but not really relating to PPI or packaged bank accounts.
“There is a strong case for introducing analogous provisions not just for advice claims, but for any claim full stop.”
Highclere Financial Services partner Alan Lakey adds: “Clearly the MoJ is not so worried about the investment side of the claims management industry but I have seen some appalling adverts in the past from claims firms.
“We need some form of differentiation between what is a true complaint and what is an opportunistic one. It is not good enough that a CMC is allowed to write to me saying they think their client has been missold a product, without first checking the plan exists.
“But the adviser is obliged to create a complaint when that happens and tell the FCA about it. It is a real pain for the industry.”