Posted on 21.04.2021

ACSO responds to the FCA consultation on restricting CMC charges for financial products and services

The Association of Consumer Support Organisations (ACSO) has responded to the Financial Conduct Authority (FCA) consultation 'CP21/1: Restricting CMC charges for financial products and services claims'. 

Rachel Cairnes, policy and public affairs advisor at ACSO, said: "Well-governed and effectively regulated claims management companies (CMCs) play an important role in helping consumers to secure redress, not least for those who may otherwise be unable or unwilling to bring a claim themselves. A well-functioning CMC market is able to act as a check and balance on the conduct and complaint-handling processes of businesses, which therefore serves the public interest. CMCs provide consumers with additional choice on how to handle their claims: they can either be unrepresented, seek assistance from a McKenzie friend, use a legal representative, or have a CMC support them in their claim.

"We welcome the FCA's acknowledgment of the value of CMC services to individual consumers as well as to society or consumers more generally. In seeking to identify and regulate excessive charging, the value of the CMC sector should not be disregarded. Moreover, a distinction must be made between the many reputable firms who charge reasonably, and those minority who charge their consumers excessive fees or otherwise do not act in their best interests.

"The FCA's proposed fee cap intends to provide consumers with the clarity and certainty they need to make informed decisions before entering into a contract with a CMC. Reputable CMCs will support this aim and co-operate with the FCA to achieve it. However, a reduction in CMC charges must be balanced with the need to maintain a viable and competitive market. While the FCA intends to protect consumers, an ill-considered cap could lead to firms refusing to represent consumers, thereby creating clear consumer detriment. Any new regime must protect access to justice in addition to deterring exploitation and malpractice. 

"It is important that consumers receive value for money and the redress to which they are entitled. However, they should have the option to pay a higher fee for a CMC that provides them with a better quality of service, provided they are doing so on the basis of clear and transparent information. While price is an important consideration when choosing a legal service provider, consumers also consider the reputation of a provider and whether they are specialists in their area. In its attempt to define excessive charges, the FCA not considering the wider value that firms provider to consumers, including a firm's expertise, supports concerns that the proposed fee cap is arbitrary in nature.

"The 20 per cent fee cap for payment protection insurance (PPI) claims was sensible as PPI is not an overly complex product and the majority of banks admitted the product had been widely mis-sold. Claims made about other financial services can be far more complex, such as those regarding mis-sold mortgaged and self-invested personal pensions (SIPPs), and consumers have a significant financial stake in the outcome of the claim. The complexity of a claim and its overall value can be difficult to determine and reflect in a simple fee cap. Moreover, there is a risk of unintended consequence that, in dealing with a reduced income stream, some CMCs will offer a reduced quality of service.

"The introduction of fee caps and disclose rules must be regularly monitored in order to understand their impact upon consumers and competition within the market. The consultation document outlines the FCA's intention to start an evaluation of the changes two years after they have been implemented. In addition to this review, it is essential that ongoing engagement is conducted with CMCs, representatives of the sector and other relevant stakeholders in order to receive an in-depth understanding of the impact of the changes on consumer outcomes. 

"In summary, the proposed fee cap of between 15 - 30 per cent of redress is, as with all proposed fee caps, fairly arbitrary. It is essential that the CMC market remains viable and competitive, thereby ensuring consumers are provided with an additional choice on how to access support when seeking redress, as well as advice and guidance for those who may otherwise be unable to unwilling to bring a claim themselves. As such, we urge the FCA to keep the impact of the proposed changes under review."

ACSO  members can download the submission in full from the members' area of the website.