U.K.’s Provident Sinks on Consumer Loan Probe, Redress Plan

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Shares in Provident Financial Plc tumbled Monday after the subprime lender said the U.K.’s market watchdog had opened an enforcement probe into its consumer credit arm.

The Financial Conduct Authority is focusing on whether Provident’s door-to-door loans were affordable and sustainable over the past year, according to a trading update Monday. The shares fell as much as 30.8%, the most in more than three years.

Provident also said it was proposing to set aside 65 million pounds ($91 million) to settle the growing number of claims it lent to borrowers who were not credit-worthy. However, the firm said it could put its long-struggling consumer credit division into administration or liquidation if shareholders, customers or the regulator fail to back this plan to ringfence the compensation program.

“If this were to happen, CCD customers would not be expected to receive any redress payment,” the firm said in the statement. The FCA “has made it clear that it will not support” the settlement plan, known as a scheme of arrangement, as borrowers will not receive the full value of their claims, according to Provident. The company said it will continue to work with the watchdog on various other objections.

The FCA declined to comment. Provident said the regulator’s probe might not conclude until 2022.

Complaints against subprime lenders have soared as coronavirus lockdowns hit the finances of millions of Britons. The number of complaints to the U.K.’s Financial Ombudsman about the home credit market increased by about 200% in the second half of 2020, according to Provident, which said claims management companies were driving the rise.

Provident paid customers about 25 million pounds in redress during that period, up tenfold from a year ago. Rival lender Amigo Holdings Plc has already proposed a similar program to address the surge in claims.

The company, once a member of the FTSE 100, has spent over a century as a door-to-door lender to consumers that might otherwise struggle to access credit. Provident has made several attempts to overhaul its household loans business, while acquiring car finance firm Moneybarn and moving into credit cards under the Vanquis brand -- both of which performed ahead of expectations in the fourth quarter, the firm said Monday.

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