Claims management companies (CMCs) have been warned to "clean up their act" after an undercover investigation revealed they were misleading customers.
The firms claim they increase consumers' chances of securing compensation for mis-sold insurance, including payment protection insurance (PPI).
But an investigation into the firms discovered that they are themselves routinely offering misleading advice about the chances of success and the costs involved.
Consumer group Which? called 25 CMCs posing as a consumer. Their investigation revealed a number of what they considered to be misleading statements, breaking Ministry of Justice rules.
Two thirds of the firms contacted failed to advise the caller about how they could contact the Financial Ombudsman Service (FOS) directly to make a complaint.
And six repeatedly told the caller they had more chance of success or would receive more compensation using a CMC than by submitting a claim independently.
CMCs are required to give customers unambiguous advice about the FOS and how it can help them claim on their own.
But when Which? surveyed members of the public who had used a CMC, 59 per cent said they had not been told they could claim themselves instead.
Richard Lloyd, executive director of Which?, said: "Claims management companies must clean up their act. All too often, consumers are being misled about their chances of success and how much they’ll have to pay - the last thing people need if they’ve already fallen victim to the PPI mis-selling scandal."
Martin Lewis, creator of MoneySavingExpert.com, said it was time for such companies to change:
"Even if the claims handling companies all played it by the book, with mis-sold Payment Protection Insurance payouts of £3,000 to £5,000 now being commonplace, the price charged is far too high," he said.
"Reclaiming is easy for many, just a case of making a call or writing a letter. Yet claims handlers often charge over 30 per cent, which for many means losing over £1,000 of their payout and for most, it's just not worth using these firms."
The results of the investigation have been handed to the Ministry of Justice.