UK watchdog will not block Provident’s compensation scheme in court

The UK’s financial watchdog has announced that it will not formally oppose Provident Financial’s plans for its doorstep lending unit in court, even though it has said it does not support its compensation scheme for customers who were mis-sold loans.

The Financial Conduct Authority (FCA) expressed its concerns in a letter to Provident Financial, saying it believed the compensation plan would offer consumers significantly less than they were owed.

The FCA added that the doorstep lender’s scheme of arrangement for customers of its consumer credit division (CCD) was “inconsistent with the FCA’s rules, principles and objectives”. However, it said it believed that blocking the scheme was likely to result in the insolvency of the business, which would mean customers would receive even less money.

In March, Provident wrote to 4.3 million of its former and current customers, telling them that its CCD could collapse into administration unless they agreed to a sharp reduction in compensation payments for mis-selling.

Provident and its competitors – which lend money to people who are not able to get loans from mainstream banks – have come in for scrutiny in recent years over their high interest rates.

Provident told customers that its profits had been knocked by the pandemic, as well as by a rise in complaints against its CCD by claims management companies, which had filed grievances on behalf of customers. Provident made £25m worth of payouts in the second half of 2020 – 10 times more than those made during the same period a year earlier.

The lender said the scheme would ensure a “fairer and more equitable outcome” for its customers, but added that compensation payouts “may be significantly less than the amount claimed”.

In the FCA’s most recent letter to Provident, it said it had “significant concerns in general about the use of schemes of arrangement by regulated firms to avoid paying customers redress in full”.

Earlier this year, the FCA raised its objections in court to a similar scheme proposed by the UK sub-prime lender Amigo designed to cap customer compensation claims, which was ultimately rejected by the high court.

Provident Financial confirmed in May that it was closing its doorstep lending business after 141 years, a move that put 2,100 jobs at risk.

Its chief executive, Malcolm Le May, said the CCD’s loan book had been reduced to £42m between May and the end of June, while 1,000 workers have left the business.

Le May said Provident’s view “remains that the scheme and managed runoff is the best outcome for customers and its stakeholders and it will present that case to the court”.

Provident Financial’s shares rose by more than 3.5% after the publication of the FCA’s letter.

Customers still have several days to vote on Provident’s plans, which will also need to be approved by a court. If the scheme is agreed upon, Provident said it expected customers with valid claims to receive compensation by late 2022.

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