Borrowers who think a short-term lender should never have approved their loan are often contacted by claims management companies (CMCs) offering to pursue a complaint for a fee. Whether to use one is a choice with a real cost, because a complaint to the lender and the Financial Ombudsman Service can be made directly. This guide sets out what the Financial Conduct Authority (FCA) and the Ombudsman Service say about CMCs, fee limits and the questions an unaffordable-lending complaint turns on. The FCA’s 2019 announcement on taking over CMC regulation referred to CMCs in England, Scotland and Wales.
What a CMC does
The FCA describes CMCs as firms or individuals that can help someone make a claim, and it stresses that they charge a fee. A CMC may investigate a claim, represent the customer, deal with paperwork or put them in touch with lawyers, and should say how likely the claim is to succeed. Some act only as lead generators, identifying possible claims and referring them to other CMCs or lawyers. The FCA’s page states that a claim can be made without a CMC, free of charge, and that organisations such as MoneyHelper can provide free guidance to anyone who is unsure how to start.
Checking a CMC is authorised
According to the FCA, CMCs must be authorised by it when they provide services for claims about financial services and products, personal injury, employment matters, criminal injury, housing disrepair and certain industrial injuries benefits. Some claims management services are instead regulated by a legal regulator such as the Solicitors Regulation Authority, the Bar Standards Board, CILEx Regulation or the Law Society of Scotland. The FCA advises checking the FCA Firm Checker or the relevant register before signing up. For lenders, the parallel check is described in our guide to checking the FCA register.
Fee caps for financial services claims
For claims started on or after 1 March 2022, the FCA’s page sets maximum CMC fees for financial services claims by the amount awarded, excluding VAT. Where redress is between £1 and £1,499 the maximum is 30% and no more than £420. For £1,500 to £9,999 it is 28% and up to £2,500; for £10,000 to £24,999 it is 25% and up to £5,000; for £25,000 to £49,999 it is 20% and up to £7,500; and from £50,000 it is 15% and up to £10,000. The page says the cap does not apply if a claim is pursued in court with a CMC, and the FCA’s 2022 announcement adds that a customer who complains directly to the Ombudsman Service or the Financial Services Compensation Scheme keeps all of the redress awarded.
What a CMC must disclose
The FCA’s 2019 announcement said its rules require CMCs to give clear upfront information on fees and services, provide a summary document before a contract is signed, and tell customers about free alternatives such as the Financial Ombudsman Service and FSCS, including in advertising. The 2022 changes added detail on how fees will be calculated and on the free routes to redress before a contract is entered into.
What an unaffordable-lending complaint turns on
The Ombudsman Service’s approach to unaffordable or irresponsible lending is to ask whether the business did everything it was required to do and, if not, whether the customer lost out as a result. For a regulated credit agreement, it asks whether the lender made reasonable and proportionate checks that the borrower could repay in a sustainable way, whether a fair lending decision followed, what proportionate checks would more likely than not have shown if none were carried out, and whether the lender should have realised at some point that additional credit was increasing indebtedness in an unsustainable way. Its guidance says it will typically look at the application form, the credit file results obtained at approval, income information and verification documents, income and expenditure checks and the account history. These are the same themes as in our guides to affordability checks and to complaining to the Financial Ombudsman Service.
Complaining about a CMC
The FCA says the Financial Ombudsman Service is responsible for resolving disputes about CMCs, and the Ombudsman Service took over that role from the Legal Ombudsman when FCA regulation began.
FAQs
Do I need a CMC to complain about a loan?
No. The FCA says it is free and simple to make a claim yourself, and MoneyHelper can offer guidance.
What is the most a CMC can charge?
For financial services claims started on or after 1 March 2022, the FCA cap ranges from 30% (maximum £420) on awards below £1,500 down to 15% (maximum £10,000) on awards of £50,000 or more, excluding VAT.
Does the cap apply in court?
The FCA says it does not apply if a claim is pursued in court with a CMC.
How do I check whether a CMC is authorised?
Search the FCA Firm Checker or the register of the relevant legal regulator, as the FCA advises.
The bottom line
A CMC can help with an unaffordable-lending complaint, but the borrower pays for it and the FCA states the same claim can be made directly and free. Fees for financial services claims are capped in bands, and an authorised firm must explain free alternatives before a contract is signed. This is general information, not financial or legal advice on a specific complaint.