Rogue claims companies that provide bad service and bombard people with nuisance calls face fines totalling hundreds of thousands of pounds under new plans.
Those who use information gathered by unlawful unsolicited calls and texts, waste people's time and money by making spurious claims or use misleading marketing could be fined up to 20% of annual turnover, justice minister Lord Faulks said.
Fines will be based on the turnover of the company and the nature of the offences, meaning they could potentially stretch to millions of pounds in some cases.
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 fines, due to be introduced later this year, will be brought against companies which break rules set by the Claims Management Regulation (CMR) unit at the Ministry of Justice (MoJ).
CMR head Kevin Rousell said: "Again and again we have seen examples of bad practice from claims management companies (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."
The unit already has powers to vary, suspend or cancel any firm's licence to operate in the claims management sector.
In April last year, a ban was introduced on referral fees in personal injury cases.
Latest figures show that the number of CMCs registered to handle personal injury claims has fallen from around 2,300 at the start of last year to 1,200 at the end of May, the MoJ said.