The City watchdog has announced a clampdown on rip-off fees for victims seeking compensation from financial firms.
From today, the Financial Conduct Authority said fees charged by so-called claims management companies would be capped. Also known as “ambulance chasers”, the firms were known to take huge slices off compensation paid out to victims.
However, an FCA investigation found some firms had charged as much as half the compensation, in some cases leaving them no better off for having made a claim.
Claims firms will now only be able to charge a maximum of 30pc on any reward worth £1,499 or lower. Those worth between £1,500 and £9,999 will be capped at 28pc and those between £10,000 and £24,999 are capped at 25pc.
Payments worth between £25,000 and £49,999 will have charges capped ay 20pc, however, if a reward for financial malpractice exceeds this, the fee to claims firms will be called at £10,000 or 15pc, whichever is lower.
The cap will apply to most claims where a consumer is awarded redress from a financial services firm, such as a bank, insurer or pension firm. In many cases these claims will be for mis-sold financial products or bad advice.
Claims firms have been found to have taken large portions of their clients’ pension pots and harmed those deeply in debt, the review found. In one case, a couple paid £27,000 in claims firm fees for a £56,000 payout. They would have paid £18,500 less under the new system.
The new rules will also mean claims management firms will also have to make customers aware of the free routes to redress such as via the Financial Ombudsman Service.
PPI claims will not be affected as these are already subject to a 20pc cap. The FCA previously predicted the new rules will save consumers around £9.6m a year.