New powers will be given to the Ministry of Justice by the end of the year to clamp down on malpractice in the sector.
Rogue claims management companies that flout the rules could face fines of up to 20% of their turnover from next year.
New powers will be given to the Claims Management Regulation (CMR) unit at the Ministry of Justice in the latest attempt to crackdown on bad practice in the sector.
Breaking the rules
Fines will be served to firms which break the rules set by the CMR unit.
Breaches include gathering information through unlawful unsolicited calls and texts, wasting people’s time and money making "spurious claims" or using misleading marketing.
Financial penalties will be based on the turnover of the company as well as the nature of the offences, which means they could amount to millions of pounds in some cases.
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Boosting confidence
Justice Minister Lord Faulks, who announced the new powers, 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."
Driving out malpractice
[SPOTLIGHT]The Ministry of Justice already has powers to vary, suspend or cancel any firm’s license to operate in the sector but it is hoped the new fines will provide an additional way to tackle badly behaved firms.
Kevin Rousell, head of the CMR unit, said : “We already take tough action against companies which break the rules, but now these fines will help to drive malpractice out of the industry and improve the reputation for those who do follow the correct procedures.”
Ongoing fight
The new fines represent the latest move by the Government to rid the claims management industry of rogue firms.
It has already appointed more enforcement staff, banned the practice of taking fees from a customer before a contract is signed and now allows firms which are subject to enforcement action or under investigation to be named.
In April 2013 a ban on referral fees for personal injury cases was also introduced.
Figures show the number of claims management companies registered to handle personal injury claims almost halved as a result, dropping from 2,300 at the beginning of 2013 to 1,200 at the end of May 2014.
Currently there are around 2,000 companies licensed to provide claims management services, with around 1,200 licensed for personal injury claims and 1,000 for financial claims - the overlap coming as some operate in both areas.
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