Crisis at the Provvy: Shares dive 28% and watchdog launches a formal probe as doorstep lending arm faces collapse
Provident Financial lost more than a quarter of its value after warning that its doorstep lending business faces collapse.
The sub-prime lender is struggling to cope with a surge in complaints from customers at its consumer credit division seeking compensation.
To deal with the situation Provident – which targets borrowers deemed by banks as too risky to lend to – has set aside £50million for a ‘scheme of arrangement’ to provide some redress.
Threat: Provident Financial, led by boss Malcolm Le May (pictured), said it could not cope with a surge in complaints from customers struggling to repay loans at its consumer credit division
The company warned that if the proposals are rejected the division will fold – leaving customers with nothing.
But the Financial Conduct Authority has refused to sign off on the plan because claimants would only receive about 10 per cent of what they are owed.
And in a further blow, the watchdog has launched an investigation into whether Provident carried out proper affordability checks before lending.
Provident shares fell 27.7 per cent, or 72.4p, to 189.2p – leaving the company worth just £480million.
Provident – led by chief executive Malcolm Le May, pictured – warned that unless an agreement with the FCA and its customers can be found, the business faces administration or liquidation.
‘If this were to happen, customers would not be expected to receive any redress payment,’ a spokesman said.
The rise in complaints has also led to the FCA opening up an investigation into whether loans provided by Provident Financial were affordable.
Complaints soared by 200 per cent in the second of half of last year and the firm paid £25million in grievances compared with £2.5million in the same period in 2019.
Provident’s doorstep lending arm accounts for 10 per cent of the group’s business.
The business predominantly issues credit cards and consumer car finance through its Vanquis Bank and Moneybarn arms.
Provident Financial has been lending on the doorstep since the 1880s and the business has around 379,000 customers.
Some campaigners have labelled the arm a ‘loan shark’ as the rates of interest on loans can climb sharply.
But Stuart Duncan, analyst at Peel Hunt, said the business provided a vital service and performed well until the pandemic struck.
He said: ‘Provident lends to non-prime customers and what’s changed has been the pandemic. The customers they deal with are sensitive to changes.
‘They’re reliant on the credit to pay bills on a daily and monthly basis. But they’ve suffered from furlough incomes – furlough doesn’t pay 100 per cent – and unemployment. There’s lots of challenges to peoples incomes.’
The FCA has also opened an investigation into whether Provident carried out proper affordability checks before lending to customers. The FCA’s probe is not expected to finish until 2022.
Provident Financial was plunged into a crisis in 2017 when it went ahead with a botched overhaul of its credit business by replacing its army of self-employed doorstep collection agents with direct employees.
Since then it has been repairing its image and two years ago the company was subject to a £1.3billion hostile takeover by rival Non-Standard Finance.
Non-Standard Finance walked away in the summer of 2019 after the competition watchdog said the deal would significantly lessen competition in this part of the sub-prime debt market.
Provident shareholders including Invesco, Marathon and Neil Woodford all backed the deal at the time.
Provident also added yesterday that its car loan division, Moneybarn, and Vanquis, its principal business which issues credit cards, were performing well.
As a result, results for 2020 are expected to be ‘slightly better than current market expectations’, the firm said.