The Ministry of Justice has been given the power to fine claims management companies for the first time, which it describes as “a new weapon” against rogue firms.
Currently the MoJ, which regulates claims management firms, can only take enforcement action against companies with substandard practices.
But under a new power included in an amendment to the Financial Services Bill, it will be able to impose large fines on claims firms which use information gathered by unsolicited calls and texts or which provide poor quality services.
The MoJ will also consult this week on a new set of toughened conduct rules for its claims management regulation unit, and on an increase in fees for regulated firms.
The increase in fees will be used to fund the recruitment of additional enforcement staff at the unit. A spokesman for the MoJ says it currently employs around 80 enforcement staff, and plans to increase this to more than 100 by the end of the year.
The new set of rules, which will be published in full later this week, includes giving claims companies a duty to make sure the claims they are submitting have a realistic chance of success, as well as ensuring full evidence is provided to back up any allegations.
Firms will also have to carry out thorough audits of how data they use has been gathered, so they can no longer turn a blind eye to whether leads have been found by illegal marketing texts and calls.
The Government also plans to strengthen the claims management regulation unit by appointing independent regulatory experts in non-executive roles and commissioning a comprehensive review of the independence of its current governance arrangements.
Head of the claims management regulation unit at the MoJ Kevin Rousell said: “We do not tolerate bad practice and continue to take action against companies which break the rules, including removing their licence to trade. Issuing fines will be an important new weapon for us.”
Justice minister Shailesh Vara said: “We will not tolerate companies which waste hardworking people’s time and money through their own laziness, incompetence or frankly dubious practices.
“We are already making sure rogue companies are shut down – and now we are ensuring those who are wasting everyone’s time will pay for it.”
The Financial Services Bill is currently progressing through parliament and the MoJ says its fining powers are expected to take effect next year, when it will publish further details on maximum fine levels.
The MoJ says the number of claims firms in operation has fallen from a peak of 3,400 in 2011 to 2,300 now.