A leading claims management company has warned that law firms will feel the backlash from new charges for complaints-handling.

The Legal Ombudsman is set to deal with complaints about CMCs from later this year, with a consultation ending today on the best way to meet the £3m cost of the extension.

The final proposal from the Ministry of Justice, which currently handles the complaints, is to introduce flat charges on a sliding scale of fees based on a company’s turnover.

But one of the biggest CMCs, First4Lawyers, says the arrangements make no provision for the cause of complaints and unfairly punish those involved in personal injury.

The company pointed to the MoJ Claims Management Regulation Unit’s most recent annual report, which said that 94% of consumer complaints are about CMCs operating in the financial products and services sector – in most cases over mis-sold PPI.

This would mean of the estimated 3,000 complaints made in the next year, fewer than 200 would relate to PI.

First4Lawyers says the knock-on costs will affect the 40-plus law firms currently on its panel.

Director Qamar Anwar said: ‘The reality is that small CMCs operating in PPI are the main cause of complaints, and yet the fee proposed for them is less than £200, while the large, reputable and ethical CMCs such as First4Lawyers could end up paying £40,000.

‘This is neither fair, targeted nor proportionate. These costs will inevitably feed through to our panel firms and squeeze their already tight margins.’

First4Lawyers’ consultation response suggests the funding should be split between six market sectors and based on the number of upheld complaints. It also asks for sanctions for firms that fail to pay – something not covered in the consultation.

Under the proposals, companies turning over between £75,000 and £163,636 will pay an annual fee of £540. Any companies with a higher revenue will pay a percentage of their takings, with fees capped at £40,000.

Currently, firms with a turnover of less than £25,000 make up 40% of the industry: these companies will pay up to £250 in fees.