Law firms reminded of their obligations as new PPI fee cap comes into force
With the introduction of a new 20 percent cap due on 10 July, law firms have been reminded that when handling claims for mis-sold payment protection insurance (PPI) they must make sure they are acting in their client’s best interests and charging clients appropriately.
We have warned that while a fee cap has been set, even charges below this threshold may be considered unreasonable if they cannot be justified.
Granted Royal Assent in May, the Financial Guidance and Claims Act 2018 comes into force on 10 July. New measures in the Act include:
- An interim 20 percent fee cap (exclusive of VAT) on any PPI claims.
- A ban on any charges being made if no compensation is recovered.
Earlier this year we issued a thematic review on PPI which revealed that four out of five firms active in this area are routinely charging fees of more than 25 percent, with some charging as much as 50 percent of the compensation received.
To support firms’ understanding of the new legislation, we have produced an online Q&A whilst working with the Claims Management Regulation Unit. We have also issued an update to our PPI Warning Notice first published in August 2017.
Paul Philip, Chief Executive, said: “In the majority of cases, claims for mis-sold PPI can be handled in a fairly straightforward manner by members of the public themselves without attracting a fee. We expect solicitors to always advise their clients accordingly.
“For more complex cases where professional support may be needed, firms should only charge what is justified by the work they actually do.”
We acknowledges law firms can play a role in handling complicated or time-consuming claims but has reminded solicitors of their regulatory duty to act in their client’s best interests. If firms are found to have ignored the fee cap, are unable to justify fees or cannot demonstrate that they have acted in their client’s best interests we will consider regulatory action.
While the number of firms active in this market is thought to be relatively small, possibly less than one hundred, they still collectively handle claims worth hundreds of thousands of pounds. The largest single claim identified by the SRA thematic project was worth more than £25,000.
A deadline of 29 August 2019 is now in place, by which time all claims under the compensation scheme must have been submitted.