Provident Financial shares tumble almost 30% as it reveals FCA probe

Provident Financial shares tumble as it reveals fresh watchdog probe and warns its doorstep lending arm could collapse after compensation claims jump

  • FCA launches probe into ‘affordability and sustainability’ of loans handed out 
  • Provident is proposing £50m compensation scheme as complaints jump 200%
  • Borrowers would receive ‘significantly’ less compensation under the scheme
  • But if it’s not approved, doorstep lending arm likely to go bust, Provident said 

Provident Financial has warned its doorstep lending arm could collapse unless borrowers agree to a scheme that would see them receive ‘significantly less’ than the amount they have claimed in compensation.

It comes as the group also revealed that the division is facing an investigation by the Financial Conduct Authority into the way Provident assessed the ‘affordability and sustainability’ of the loans it handed out to customers. 

The news sent shares in the FTSE 250 firm down 27 per cent to 191.27p in morning trading on Monday.

Provident, which lends to people who are denied credit by mainstream banks, saw complaints at its doorstep lending arm shoot up 200% in the second half on 2020

Provident, which lends to people who are denied credit by mainstream banks, said the number of complaints at its doorstep lending arm, or CDD (consumer credit division), shot up by around 200 per cent in the second half of last year compared to the first half.

That means the company had to dish out some £25million in compensation in the last six months of 2020, compared to just £2.5million in the same period in 2019. 

Provident has now put aside £50million as part of a scheme to settle the big jump in compensation claims that would apply to those who took out loans before 27 December last year. 

The company claims the scheme would ‘ensure that customers with a legitimate claim get fair access to redress payments’, but also admitted that compensation payouts ‘may be significantly less than the amount claimed’.

Borrowers will be asked to vote on the proposal, which will also need to be approved by the Court. If the scheme is not approved, Provident said ‘it is likely that CCD will be placed into administration or liquidation’.

‘If this were to happen, CCD customers would not be expected to receive any redress payment,’ it added.     

Provident, which also runs Vanquis Bank and Moneybarn, said that even if customers voted in favour, the scheme would probably face hurdles from the FCA.

The regulator has already said it would not support it ‘for a number of reasons, including, in this specific case, because redress creditors will receive less than the full value of their claims’, Provident said.

Provident Financial headquarters in Bradford

Provident Financial headquarters in Bradford

In January, guarantor lender Amigo, whose loans carry interest rates of up to 49.9 per cent, launched a similar ‘scheme of arrangement’ to deal with the rise in complaints, which will also limit the amount of compensation it pays to customers.   

The update is a major setback for Provident, which was plunged into a crisis in 2017 when it went ahead with a botched overhaul of its home credit business by replacing its army of self-employed doorstep collection agents with direct employees.

Provident has since been working towards repairing its brand, and in 2019 fended off a hostile bid from smaller rival Non Standard Finance.