The doorstep lending institution Provident Financial has said it could put its consumer credit department into administration unless borrowers accept a scheme that will sharply minimize compensation payments for consumer problems
The high-cost loan provider also exposed that it is facing a regulatory examination by the Financial Conduct Authority into a string of issues consisting of whether it carried out appropriate cost checks before providing to customers.
Shares in Provident Financial fell 26% after the statement on Monday, making it the greatest faller on the FTSE 250.
Provident stated revenues had been affected by the Covid pandemic and a surge in problems against its consumer credit department (CCD) by claims management companies that lodge grievances on consumers’ behalf. It made ₤ 25m worth of payments in the 2nd half of 2020, comparedwith ₤ 2.5 m in the exact same period in 2019.
It is now proposing to ringfence ₤ 50m for a scheme that will assess claims on loans released under its Provident brand and Satsuma prior to 17 December 2020. Provident declared the plan would guarantee a “fairer and more equitable outcome” for clients, however stated compensation payouts “may be substantially less than the amount claimed”.
Clients will be asked to vote on the proposal, which will likewise require to be authorized by the courts. However “if the scheme is not authorized, it is most likely that CCD will be placed into administration or liquidation,” Provident said.
A similar plan is being proposed by the guarantor loan provider Amigo, which has also stated it is facing potential collapse.
Provident, which likewise runs the credit card company Vanquis Bank and the sub-prime automobile lender Moneybarn, said it was uncertain how the administration would affect other parts of business.
The group might deal with regulatory obstacles in executing the scheme even if customers vote in favour. Provident stated that the FCA was evaluating the proposal and had currently raised a “variety of issues”.
“The FCA has made it clear that it will not support the plan for a number of reasons including, in this specific case, because redress financial institutions will receive less than the amount of their claims,” the group said.
Provident stated it hoped to solve the FCA’s issues before its very first court hearing, however stated consumers were unlikely to be prevented from making their own choice.