The doorstep lender Provident Financial has said it could put its consumer credit division into administration unless borrowers agree to a scheme that will sharply reduce compensation payments for customer complaints.
The high-cost lender also revealed that it is facing a regulatory investigation by the Financial Conduct Authority into a string of issues including whether it carried out proper affordability checks before lending to borrowers.
Shares in Provident Financial fell 26% after the announcement on Monday, making it the biggest faller on the FTSE 250.
Provident said profits had been affected by the Covid pandemic and a surge in complaints against its consumer credit division (CCD) by claims management companies that lodge grievances on customers’ behalf. It made £25m worth of payouts in the second half of 2020, comparedwith £2.5m in the same period in 2019.
It is now proposing to ringfence £50m for a scheme that will assess claims on loans issued under its Provident brand and Satsuma before 17 December 2020. Provident claimed the scheme would ensure a “fairer and more equitable outcome” for customers, but said compensation payouts “may be significantly less than the amount claimed”.
Customers will be asked to vote on the proposal, which will also need to be approved by the courts. But “if the scheme is not approved, it is likely that CCD will be placed into administration or liquidation,” Provident said.
A similar scheme is being proposed by the guarantor lender Amigo, which has also said it is facing potential collapse.
Provident, which also operates the credit card business Vanquis Bank and the sub-prime car lender Moneybarn, said it was unclear how the administration would affect other parts of the business.
The group may face regulatory hurdles in implementing the scheme even if customers vote in favour. Provident said that the FCA was assessing the proposal and had already raised a “number of concerns”.
“The FCA has made it clear that it will not support the scheme for a number of reasons including, in this specific case, because redress creditors will receive less than the full value of their claims,” the group said.
Provident said it hoped to resolve the FCA’s concerns before its first court hearing, but said customers were unlikely to be prevented from making their own decision.