The modus operandi of claims companies mean we can expect the same carpet bombing of daytime TV adverts that there was in PPI, but this time suggesting to consumers that they’d be mad not to make a claim against the provider of their consumer loan, credit card and investment.
For companies such as those whose lending book consists substantially of smaller loans of under £1,000 this scenario could be disastrous.
I spoke to a medium-sized unsecured lender recently who told me that claims were already costing him £30,000 per month.
He had an all too familiar story.
Over the space of six months or so, he had been inundated with claims for mis-sold loans, most of which were from claims companies.
He was getting cases in batches of 200-or-so from one claims company that was acting in the same manner as packagers used to in the mortgage market.
Among these cases were claims from individuals who had only been granted a loan the previous week.
And, when contacted, they had no knowledge of making a mis-selling claim.
Calls to this particular claims company go nowhere, he says.
You cannot speak to anyone who is able to access information on a specific case, suggesting that much of the claims process is automated and that leads are bought from data platforms.
He is particularly indignant because of the cases against his company that have gone to the ombudsman, only 6 per cent have been upheld.
Although there is buoyant lending demand, he wonders whether some lenders might now be wondering whether it is time to shut-up shop, given the exposure they have.
Several years of lending in the high-cost, short-term market is likely to mean many thousands of potential claims.
He is certain - as I am - that if there is no regulatory or government action on this, we are looking at the beginning of another multi-million pound drain on the financial services sector caused by a tsunami of claims that really do not have any merit.
Unfounded claims
What is needed swiftly is a change to the "heads-you-win, tails-I-lose" claims environment that the UK has still in place.
The FCA should be seriously considering some form of penalty for those who pursue unfounded claims. All it would take would be the possibility of a downside.
We have already seen how this can be beneficial in the area of fraudulent personal injury claims.
A handful of well-publicised actions taken against individuals resulted in a 19 per cent drop in claims last year, according to Ministry of Justice figures.
Surely it is about time that something which acts as a fraud disincentive should be considered by the regulator.
