Rogue claims management companies that use information based on cold calling or spam texts could face seven-figure fines under new government powers.
The Ministry of Justice is set to unveil plans to fine companies up to 20% of their turnover in its latest crackdown on elements of the industry.
It is the first time penalties have been linked to the revenue of a firm and could lead to some companies being fined millions of pounds if they breach new rules.
Justice minister Lord Faulks will confirm the new fining powers today following a consultation earlier this year.
As well as using information through unsolicited calls and texts, claims companies can be fined for wasting people’s time and money by making ‘spurious or unsubstantiated claims’, and for ‘misleading’ marketing.
The new rules are set to apply from next year and will be policed by the MoJ’s claims management regulation unit. The law changes to allow fines to be issued were part of the Financial Services (Banking Reform) Bill 2013.
Lord Faulks said: ‘No longer should claims companies be able to plague hardworking people and waste everyone’s time. The scale of these fines shows just how serious we are about stopping them.
‘This is also good news for the reputable firms in this industry, as it will boost confidence in the services provided by the sector.’
The MoJ already has powers to vary, suspend or cancel any firm’s licence to operate in the claims management sector but the new fining power provides an additional way to tackle rogue companies.
Extra fining powers are the latest MoJ attempt to clean up the claims management industry. Referral fees were banned in April 2013 and the department barred companies from offering up-front incentives later that year. From the end of this year, the Legal Ombudsman will have the power to handle complaints about CMCs.
Latest figures show that the number of CMCs registered to handle personal injury claims fell from around 2,300 at the start of 2013 to 1,200 at the end of May 2014.