Claims management companies (CMCs) that bombard people with nuisance calls could be fined of hundreds of thousands of pounds, it has been announced.
Those that provide bad service by wasting people's time and money by making spurious or unsubstantiated claims, employ misleading marketing tactics and/or gather information through unlawful unsolicited calls and texts will be punished.
Under government proposals outlined by Justice Minister Lord Faulks QC, the fines that will commence later this year will be based on the turnover of the company involved and the nature of the offences.
The biggest firms could be hit with a penalty amounting to as much as 20% of annual turnover.
Justice Minister 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."
The fines represent the latest bid to get tough with CMCs as the government has already implemented a series of measures, which have included banning firms from taking fees from customers before contracts have been signed and taking referral fees in personal injury cases.
The number of CMCs registered to deal with personal injury claims has since fallen, from around 2,300 in early 2013 to 1,200 at the end of May 2014.
Kevin Rousell, head of the claims management regulation unit at the Ministry of Justice, said: "Again and again we have seen examples of bad practice from CMCs that continue to plague the claims industry and bother the public.
"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."
Rousell's unit already has the power to suspend or cancel rogue CMCs' licences to operate, while firms facing enforcement action or under investigation can be named and shamed.
Andy Cullwick, head of marketing at First4Lawyers, said: "While the MoJ's proposed fines may be a deterrent, we believe naming and shaming and removing the licence to practise of firms that flout the rules will be far more effective."
He explained: "Fines will also be limited as bigger firms, with a larger turnover, will have spent the time and money to ensure their marketing processes remain ethical and on the right side of regulation. Smaller firms, however, with unscrupulous methods may simply continue their malpractice under a different name. It would be a robust move for the MoJ to take steps to close loopholes that allow unethical CMCs from continually repeating these offences."