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Provident compensation plans slammed by regulator

Written by: Emma Lunn
The Financial Conduct Authority (FCA) has refused to support a so-called ‘scheme of arrangement’ put forward by the doorstep lender, saying it would leave consumers short-changed.

The FCA’s key concern is that consumers with complaints about the way high cost loans were sold are being offered significantly less than the full amount of redress they are owed.

Provident Financial announced in May that it was closing its doorstep lending business Provident Personal Credit. The business had been struggling even before the coronavirus pandemic, losing £21m in 2019. However, those losses expanded dramatically during 2020 to £75m.

Provident Personal Credit typically offered loans to people with poor credit histories who struggled to borrow money elsewhere. Cash loans were delivered to customers’ doorsteps, with debt collectors then visiting customers’ homes each week to collect cash payments.

The company had faced a wave of mis-selling complaints by customers, partly driven by claims management companies. In March, the company warned that its consumer credit division could collapse into administration because of the deluge of compensation claims. It subsequently launched a scheme of arrangement in order to address the issue of rising customer complaint volumes.

The group has committed £50m to fund claims under the scheme and will cover further scheme related administrative costs of approximately £15m.

But the FCA says the scheme is “inconsistent with the FCA’s rules, principles and objectives” and has refused to support it. However, it will not oppose the lender in court.

The regulator is refusing to back the scheme because it says it will result in customers with valid redress claims receiving significantly less than the value of their claims. It also says the Provident Financial group could contribute more to paying redress creditors – but has decided not to do so.

The FCA has also criticised Provident Financial for initially committing to support Provident Personal Credit but later changing its mind. The group has said it will withdraw Provident Personal Credit’s access to funding if the scheme is not approved. This would push Provident Personal Credit into insolvency proceedings.

The regulator says this “take it or leave it” position concerning opposition to the sanction of the scheme is “unsatisfactory”.

The FCA has significant concerns in general about the use of schemes of arrangement by regulated firms to avoid paying customers redress in full. In May it rejected a scheme of arrangement proposed by guarantor firm Amigo Loans.

The FCA expects that Provident will bring its letter to the court’s attention at a sanction hearing scheduled for 30 July 2021, when the court will be asked to sanction the scheme.

The FCA isn’t formally opposing the scheme in court because the only likely alternative to a scheme is the insolvency of Provident Personal Credit Ltd. It says that in an insolvency scenario, without a scheme, consumers would be likely to receive no redress at all.

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