The Ministry of Justice (MoJ) will be given the power to fine claims firms which use information gathered by unsolicited calls and texts or who provide poor quality services.
Claims management firms have flourished following the payment protection insurance (PPI) mis-selling scandal. Calls are often automated and are made to people who never bought the product, but who are told they can make a claim.
The MoJ fines against claims firms will be brought in as part of changes being made through the Financial Services Banking Reform Bill and are expected to take effect next year when details on the maximum fine levels will be published.
In addition, the MoJ said its Claims Management Regulation (CMR) unit will be expanded with more enforcement staff. This will be funded by "an uplift in fees paid by regulated claims firms", according to the MoJ.
The unit will be further strengthened with the appointment of independent regulatory experts in non-executive roles, according to CMR head Kevin Rousell.
New rules will be published by the CMR unit later this week and will include 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.
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."
Financial Secretary to the Treasury Sajid Javid said: "These new rules will put PPI claims pests in their place.
"Cold call companies that bother the public will now have one less reason to do so."
Government action has led to the number of claims firms operating dropping by more than 1,000 since a peak of 3,400 in 2011 to 2,300 now.
From Wednesday 20 May
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