The Financial Services Compensation Scheme has pledged to encourage consumers to access its service directly as it confirmed almost three quarters of the claims it receives are made by claims management companies.
Speaking at a Treasury committee evidence session today (July 3) Jimmy Barber, chief operating officer at the FSCS, said about 70 per cent of the claims that reach the lifeboat scheme are submitted by CMCs.
This is despite the service being free to use directly for consumers and CMCs often charing hefty fees of about 30 per cent.
Mr Barber said the FSCS was "working on" ensuring the public understood the protection offered by the scheme was free to use and claimants would receive 100 per cent of their compensation when contacting the service directly.
This was in response to questions from Charlie Elphicke, MP for Dover, who asked whether a ban should be introduced to prevent CMCs submitting claims on behalf of consumers to the FSCS.
He said: "Do you think there is a case for saying these claims management companies are like a pestilence on the system, no-one can use a claims management company anymore, come to us direct and we'll help you?
"...will that make the whole system more efficient and make it work better?"
Mr Elphicke claimed "everyone knows" the Financial Ombudsman Service, the UK's financial dispute resolution body which works alongside the FSCS, was currently "besieged by claims masterminded by CMCs", which was "virtually grinding the service to a halt".
Mr Barber said: "When somebody does choose to use a claims management company we then have to bear in mind the customer at the end of that claim, and so we collaborate effectively with the claims management companies to make sure that the customer gets the best experience possible."
Caroline Rainbird, the recently appointed chief executive at the FSCS who was also at the hearing, said: "We would always prefer that customers come directly to us for the reason that they get 100 per cent of their compensation, we're a free service and there is no VAT to be paid on top.
"We will do whatever we can do to encourage that and signpost that, and any help that anybody else can do along those lines will only ultimately benefit the end user customer."
Ms Rainbird said any suggestion of a ban on CMCs submitting claims to the FSCS would be guided by the FCA, which sets the service's eligibility criteria.
The Financial Conduct Authority assumed control of CMC regulation at the beginning of April, taking over from the Claims Management Regulator.
In a dear CEO letter last month the City-watchdog warned CMCs low levels of uphold rates for complaints submitted to the Fos could work against them when applying for authorisation under their new regulator.