Loan shark route for borrowers as Provident ends doorstep loans?

Provident Financial is closing its doorstep lending business after 141 years, The Mail on Sunday can reveal. 

As part of the dramatic move, the FTSE250 firm will also close its online lending business, Satsuma, leaving Provident to focus on its credit card business, Vanquis Bank, and its car finance operation, Moneybarn. A source with knowledge of the plans said the company was preparing to tell shareholders when it publishes its annual results on May 10. 

The source said shutting the company’s loss-making consumer credit division should boost Provident’s shares, which closed at £2.45 on Friday, down a fifth on the start of the year. A spokesman for Provident declined to comment. 

Pulling down the shutters on Britain’s oldest doorstep lending business – which has more than 380,000 customers – will send shockwaves through the sub­-prime industry, which provides loans to people with patchy credit histories who struggle to borrow from high street banks. 

Doorstep loans are where a lender calls at the borrower’s home to collect repayments, usually at high rates of interest. Industry insiders warned last night that the sector could go the same way as payday lending, which has all but disappeared since industry leader Wonga shut in 2018. 

Firms including Provident have faced a crackdown by the City watchdog and a flood of customer complaints. But there are fears that desperate borrowers will fall into the hands of illegal loan sharks if the industry is wiped out.

According to one source, Provident is preparing to pull back from the market via a so-called ‘collect out’ plan, where it will try to claw back loans while slowly winding down the entire operation. 

The source said: ‘The collect out period, given the average turnaround of their loans, I would put at 12 to 18 months maximum. To encourage people to repay, you re-lend to certain cohorts, such as those with the largest balances. You need to keep them in the relationship to gently wind them down, lessen their dependency and get the maximum collect out.’ Provident and other short-term lenders have come under huge pressure from claims management firms and the sharp rise in the number of complaints upheld by the Financial Ombudsman Service. 

In the last six months of 2020, the ombudsman was flooded with 10,000 complaints about Provident and 13,000 about its rival Amigo. More than seven in ten Provident complaints were upheld. 

This has forced Provident and Amigo to set up compensation schemes that repay only a portion of customers’ claims. Provident’s £50million scheme for claims on loans issued by its doorstep arm and Satsuma before December will be voted on by customers and get legal approval in July. It has already warned that these will be put into administration if the scheme is not approved. But the Financial Conduct Authority has raised concerns about the proposals as they threaten to leave claimants short-changed.

Satsuma, which has 136,000 customers, has already stopped lending to new ones while Provident’s doorstep business has tightened its lending criteria. Provident is also under investigation by the FCA over the way it assessed customers’ ability to afford loans. But one consultancy, Trifin Partners, said by not controlling the claims management firms that are flooding subprime lenders with compensation requests, the FCA is allowing a legitimate industry to be pushed to the brink of collapse. 

Trifin said this created ‘a chasm for criminals to fill the gap’ in which ‘drug dealers hide behind small doorstep lending ‘shells’ to launder money on council estates, enforcing loan repayments at excruciatingly high rates of interest with abuse, physical violence and predatory sexual behaviour to pay debts’. 

Provident’s plans come as rumours of a takeover of Amigo, founded by self-confessed former petty criminal James Benamor, saw its share price rise 12 per cent.