The Financial Conduct Authority (FCA) has introduced a cap on fees for claims management companies (CMCs).

The regulator said it will prevent CMCs from “charging excessive fees to consumers owed compensation from financial services firms”.

The cap is based on the total redress due.

If a consumer’s redress amount is below £1,500 they can only be charged a maximum of 30% of their claim or £420, whichever is lower, by a CMC.

For redress amounts of £50,000 or above the maximum rate of charge is 15% or £10,000, whichever is lower.

The cap is expected to save consumers £9.6m a year.

It will apply to most claims where a consumer is awarded monetary redress from a financial services firm, either directly from a firm, via the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS).

For other financial services claims, the rules “require charges to be reasonable”.

The new rules will also require CMCs to disclose key information to consumers before entering a contract, such as giving more detail about how fees will be calculated and making sure they are aware of the free routes to redress available.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our rules protect consumers from losing a significant amount of their compensation in excessive fees, particularly when there are ways for them to make claims without incurring any fees. 

“The changes are part of our ongoing work to drive a fundamental shift in industry mindset so we can stop consumer harm before it happens, and to ensure more consistent standards of protection.”

The new rules do not apply to PPI claims which are already subject to a 20% cap, set by Parliament.