Ministers are cracking down on companies handling claims for payment protection insurance (PPI) refunds by capping their charges.
The Ministry of Justice announced today that it would be limiting the fees charged by claims management companies (CMCs), many of which are claiming more than one-third of consumers' financial claims for themselves.
"We want to do all we can to get consumers a fairer deal," said Justice Minister Lord Faulks. "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.”
According to the Ministry of Justice, firms have taken an estimated £3.5bn in charges from consumers since 2011 – not to mention pestered millions of customers with aggressive marketing tactics and unprompted phone calls that some consumer groups, banks and insurers say are fuelling speculative claims.
Kevin Rousell, head of the Claims Management Regulator, said the proposals being tabled by the Ministry of Justice – including capping maximum completion fees at 15 per cent and limiting overall charges for claims worth more than £2,000 to £300 – would "ensure the industry provides a better deal for those consumers and operates to more professional standards".
Chancellor George Osborne first announced plans to restrict CMCs at last year's Summer Budget. The government has already taken some action against CMCs violating existing rules, fining firms and cancelling the licences of over 1000 CMCs since 2010.
An eight-week consultation on the government's proposed changes will begin tomorrow.