The fees charged by claims management companies could be capped under proposals by the City regulator, potentially saving customers a total of £9.6 million a year.
Some consumers currently pay fees of more than 40% of the redress they receive following complaints about products, the Financial Conduct Authority (FCA) said.
Its proposed cap will mean claims management companies (CMCs) will not be able to charge more than 15% to 30%, depending on how much compensation a consumer is due.
This will mean some consumers save several thousand pounds on the fees they pay to CMCs.
The cap will apply to all claims where a consumer is awarded monetary redress, apart from PPI (payment protection insurance) claims, which are already subject to a cap set by Parliament.
The PPI price cap for CMCs is 20% of the redress paid to the consumer and this will be unaffected by the FCA’s proposals.
Apart from PPI, the vast majority of financial services and products claims currently being managed by CMCs relate to four particular financial services or products – packaged bank accounts, loans, savings and investments, and pensions, the regulator said.
CMCs will also be required to disclose key information, such as saying more about how the fees they pay will be calculated and better signposting to the free alternative routes to redress available.
This information must be disclosed to consumers before they enter into a contract, to help consumers make better-informed decisions, the regulator said.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “We took over regulation of CMCs in April 2019, and have since been proactively supervising the sector.
“When working well, CMCs can provide useful services for consumers.
“However, consumers can experience harm when they do not understand the nature of the service CMCs provide and where they are charged excessive fees. The proposals we have announced today are designed to address this.
“We estimate that the proposed cap on fees could save consumers around £9.6 million a year.”
The consultation is open until April 21 2021, with a policy statement expected to be published in the autumn.