The Solicitors Regulation Authority (SRA) has set out the fee caps it is planning to impose to prevent law firms handling financial product or services mis-selling claims from charging “excessive” fees.
There would be an exception for a “small proportion of cases”, including those unsuitable for statutory redress schemes or with complex or novel circumstances.
A consultation paper said the regulator’s aim was to ensure “a continued viable market” for solicitors to represent consumers with financial service claims, “particularly where claims are complex and/or within untested areas”.
The Financial Guidance and Claims Act 2018 imposed a duty on the SRA and Financial Conduct Authority (FCA) to make rules restricting charges for claims management activities in relation to financial services or product compensation claims.
The SRA board decided in June 2021 that its approach would be to follow the rules laid down by the FCA as “primary regulator” of claims management activities. So the proposed caps follow the sliding scale adopted by the FCA for claims management companies (CMCs).
Where the compensation obtained was between £1,000 and £1,499, fees would be limited to 30%, 28% where compensation was £1,500 to £9,999, 25% from £10,000 to £24,999, 20% from £25,000 to £49,999, and 15% thereafter.
There would also be a cap on the maximum total fees law firms could charge, from £420 for the smallest category of compensation to £10,000 for the biggest. Charges would be unenforceable if they exceeded the restrictions.
Where law firms’ fees were not covered by the new caps, they would still have to be ‘reasonable’.
The SRA said the first main category of exempt claims was “representation on a claim that is eligible for direction initially to a statutory redress scheme but that is are subsequently prevented from further progression through that scheme or another scheme”.
The second was claims with circumstances “that are particularly complex, novel, or connected to group processes and that, as part of the solicitor’s discussion of options with the consumer and acting in the client’s best interests, result in agreement to pursue redress through the courts rather than a statutory redress scheme”.
The SRA said these cases incurred higher costs for law firms, meaning that the work “may become unviable” if they were subject to the same restrictions.
“This in turn would lead to some law firms no longer offering representation for the most complex or novel financial service claims, impacting negatively on consumer choice and access to justice.”
Solicitors would be required to provide information to consumers before they signed up about the other options for pursuing redress.
In an impact assessment, the SRA added: “Parity between our proposed banding model and the model in the FCA’s rules will provide increased clarity to consumers – whether they choose to use a CMC or a law firm.”
Paul Philip, chief executive of the SRA, commented: “Fees for claims management work related to financial products or services have to be set at a level that means the cost is affordable for people seeking redress, while ensuring that it is still a viable area of work for firms that provide this service for those who need it.
“So although the number of law firms involved is small, the impacts for consumers could be significant.”