Calls have been made for the Government to ban claims management companies (CMCs) from charging up-front fees after research found that customers are being left in the dark about the costs involved and their chances of success.
Citizens Advice said it has seen cases where people have won their claim for payment protection insurance (PPI) mis-selling but they have ended up worse off due to being saddled with large fees by the claims managers handling their case.
The charity said the typical up-front fee it is seeing is £600, yet customers can keep all their compensation by making a claim themselves for free. One client it has seen had been charged £3,300 in up-front fees alone.
It said it had found that a quarter of people were in debt after forking out costs for the claims management companies' fees and charges.
Citizens Advice chief executive Gillian Guy said: "Claims management companies are preying on people who have already lost out thanks to the banks' mis-selling.
"These companies are a hindrance, not a help. We see people who end up worse off because, despite having a successful PPI claim, the compensation goes to pay off their debts and they are saddled with a large fee. Plus many people are paying up-front fees yet never get a penny of a payout."
Citizens Advice said a survey of more than 300 consumers who had been contacted by CMCs found that in almost three quarters of cases (72%) when they first made contact, firms did not say when they would charge their fees and two thirds did not specify what the costs would be.
The findings come as PPI claims are continuing to rocket and estimates have put the eventual cost of the scandal at around £15 billion.
The Financial Ombudsman Service has said that people tend to have just as much chance of making a successful claim if they do it themselves as when they use a CMC, with around seven out of 10 cases upheld in consumers' favour.
Consumer champions such as MoneySavingExpert.com and Which? have been pressing the Government for tougher regulation of CMCs.