By Fran Abrams
BBC Radio 4's File On 4
Ambulance-chasing "claims farmers" who sign people up to compensation cases which leave them deep in debt
are facing a government ban on their activities.
The Law Society is failing to discipline all bad solicitors
The Constitutional Affairs Minister, David Lammy, said he had given the operatives, who cold-call householders in deprived areas or tout for cases in shopping centres, a final chance to clean up their act.
Describing the activities of the firms as "appalling," the minister accused them of bringing solicitors into disrepute and called on the Law Society to help bring them into line.
He was responding to a File on 4 investigation for BBC Radio 4, which has revealed that hundreds of people living on income support or disability benefits have been signed up for housing cases which have left them with debts of up to £2,500.
The revelation comes in the wake of high-profile collapses of personal injury companies such as The Accident Group, whose 2,500 staff were sacked by text message, and The Life Repair Group, which went into administration last year.
The programme's reporters discovered a firm named CMS Investigations had been knocking on doors in South Wales, the Midlands and Northumberland, advising tenants they might have a compensation case against their local authority or housing association.
The firm then passed on blocks of cases to various solicitors who, it said, paid it a fee for the work.
Among those who signed up were John and Lesley Pace of Pencoed, whose 50 year-old prefabricated home was damp and draughty.
For years the Paces had lived with condensation which turned to ice on the insides of their windows each winter.
CMS told them they could get their overdue repairs done, win compensation from Bridgend County Borough Council and still have nothing to pay.
But first they were asked to take out an insurance policy to cover them for legal costs in case they should lose. They were told the initial cost would be £519, for which they were given a loan by the First National bank.
The Paces won their case and were awarded £1,000 in compensation last February.
So they were shocked to receive a loan statement a few weeks ago informing them that even after the award had been credited to their account they owed a total of £1,481.86.
As well as monthly interest payments, hundreds of pounds had been added for other charges including a survey report and a "risk assessment."
"There's no way I'm paying," Mrs Pace said. "I'd rather go to prison.
"I can't afford to pay because my husband is on long-term sick benefit."
"I'd love them [CMS] to come here and knock again. They'd be out through the gate before their feet could touch the ground."
Although the Paces and other tenants were awarded compensation, Bridgend council challenged the costs in the case on the grounds that they were disproportionate.
The judge, who revealed solicitors' fees of up to £165 per hour had pushed the Paces' total costs up to £8,697, agreed.
Because the claimants won their cases, their insurance did not pay out. Because the judge did not award full costs, the council did not have to pay and so the debt remained.
Both CMS and the solicitors to whom it passed the case, PD Associates of Liverpool, had failed the tenants, the judge said.
The solicitors should have known their clients were eligible for legal aid, and also that the costs they were claiming were improper.
The judgement, to which an appeal has now been lodged, was based on 11 test cases out of more than 200 in the Bridgend area alone.
All those 11 tenants were awarded compensation and all but one nonetheless ended up in debt. One of them, Nicola Bowen, owed £2,361 plus two years' interest at 13.9 %.
Ironically, the repairs were done because the council handed its entire stock to a new housing association which was then able to raise funding to upgrade decaying properties.
File on 4 has learned of similar cases involving other solicitors in several Welsh council areas, as well as in Burton-upon-Trent in Staffordshire and in Blyth Valley, Northumberland.
Mr Lammy said a new organisation called the Claims Standards Federation had been set up to represent the industry and had been given a chance to "clean up its act."
But the former Deputy Governor of the Bank of England, Sir David Clementi, was conducting a wide-ranging review of legal regulation which would consider whether further action was needed, he added.
"I think it is absolutely appalling. We don't want to see these people continuing to bring solicitors into bad repute," he said.
"Their aggressive ways are to some extent reminiscent of the ambulance chasers in the United States. One of the options open to the government would be to act in legislation to ban or end this situation."
First National bank said it was considering the debts on a case-by-case basis.
Neither PD Associates nor CMS Investigations responded to requests for their comments on the case and on their business practices.
File On 4: BBC Radio 4: Tuesday 22 June at 2000 BST and repeated on Sunday 27 June at 1700 BST.