Provident Financial shares tumble as they reveal new surveillance investigation and warn its home loan arm could collapse after surge in claims
- FCA launches survey on ‘affordability and sustainability’ of loans granted
- Provident offers Â£ 50million compensation scheme as complaints jump 200%
- Borrowers would receive “considerably” less compensation under the scheme
- But if not approved, the home loan arm risks bankruptcy, Provident said
Provident Financial warned that its home loan branch could collapse unless borrowers agree to a program that would allow them to receive “considerably less” than the amount they claimed in compensation.
It comes as the group also revealed that the division is facing a Financial Conduct Authority investigation into how Provident assessed the ‘the affordability and sustainability âof the loans it has extended to its clients.
The news caused FTSE 250 shares to fall on Monday, closing 28% at 189.20p.
Provident, which lends to people who are refused credit by traditional banks, has seen complaints lodged with its loan holder increase by 200% in the second half of 2020
Provident, which lends to people who are denied credit by traditional banks, said the number of complaints filed with its home loan affiliate, or CDD (consumer credit division), has increased by about 200% in the second half of last year compared to the first half.
This means the company had to pay some Â£ 25million in compensation in the last six months of 2020, compared to just Â£ 2.5million in the same period in 2019.
Provident has now set aside Â£ 50million as part of a scheme to settle the big jump in compensation claims that would apply to those who took out loans before December 27 last year.
The company says the program “would ensure that customers with a legitimate claim have fair access to repair payments,” but also admitted that compensation payments “could be significantly less than the amount claimed.”
Borrowers will be invited to vote on the proposal, which will also need to be approved by the court. If the program is not approved, Provident said “it is likely that CCD will go into receivership or into liquidation.”
“If this were to happen, CCD customers should not receive any repair payments,” he added.
Provident, who also manages Vanquis Bank and Moneybarn, said that even if customers voted for, the program would likely face obstacles from the FCA.
The regulator has previously said it will not support it “for a number of reasons, including, in this specific case, because relief creditors will receive less than the full value of their claims,” ââProvident said.
Provident Financial Headquarters in Bradford
In January, lender guarantor Amigo, whose loans bear interest at 49.9%, launched a similar “arrangement” to deal with the increase in complaints, which will also limit the amount of compensation it pays to clients.
The update is a major setback for Provident, which was plunged into crisis in 2017 when it underwent a botched overhaul of its mortgage business by replacing its army of self-employed home debt collectors with employees. direct.
Provident has since worked to repair its brand and, in 2019, rejected a hostile offer from its small rival Non Standard Finance.