By Mark Fairlie

Provident Financial plc, one of the UK’s largest lenders to the sub-prime market, has been ordered to pay £169m in compensation to its customers in addition to a £2m fine to the Financial Conduct Authority.

The company, whose motto is “serving customer responsibly in the non-standard credit market”, has had a troubled few years caused by changes to the regulation of the sub-prime lending marketplace and by an internal reorganisation that did not produce the efficiency and customer care improvements hoped for.

£169m fine imposed on Provident Financial

The Financial Conduct Authority imposed both the fine and the compensation scheme on Provident Financial because of failings in its Repayment Option Plan, a service provided as part of the company’s Vanquis credit card product.

Under the Repayment Option Plan, the company’s agents informed customers that the monthly charge perProvident Financial to return £169 in compensation to customers £100 of credit was between £1.19 and £1.29. Although this was correct, agents and associated literature about the scheme failed to tell the customer that the additional interest rate was charged on actual outstanding balances at an APR of between 19.9% and 79.9%.

As a result, customers went further into debt. Speaking to the BBC, Mark Steward, the FCA’s director of enforcement and market oversight, said,

“Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing. Vanquis has decided now to do the right thing by acknowledging the wrong-doing and offering to compensate its customers.”

Vanquis will directly contact the customers involved and compensate them for the amount of interest payments they were not properly informed about. Compensation will be paid in the form of a cheque or, where a customer has an outstanding balance on their card, via a balance reduction.

If a customer has not used their account for more than two years or it has been closed, they will be contacted at the address Vanquis has on file and they will need to reply back to the organisation prior to the award of compensation.

Provident Financial to return £169 in compensation to customers

Shareholders asked to support company

Proactive Investors reported that another of the Provident Financial’s divisions, the car financer Moneybarn, has set aside £20m for expected compensation and fines over lending practices and deficiencies in its affordability assessment processes.

Provident Credit posted a loss of £123m for 2017, compared with a profit of £244m in the previous twelve months. Analysts blamed the turnaround on the switch from its traditional practice of using self-employed commission-only doorstep collectors to using payroll-based sales managers and collection agents, so-called “customer experience managers.”

In August 2017, a profit warning caused one of the largest ever falls in a share price on the London Stock Exchange, according to Sky News. It replaced its chief executive with Malcolm Le May who told Sky,

“Today we have made progress on that objective by agreeing to a resolution with the FCA in relation to Vanquis Bank and we now have a clear view on the estimated cost of the FCA investigation of Moneybarn…Today we have announced a proposed rights issue to raise net proceeds of £300m which the board believes will allow the group to implement its strategy and restart paying a progressive dividend in 2019.”

The £300m rights issue has been well-received by the company’s shareholders and investors. Its announcement sent its share price 70% on the markets on Tuesday 27th February, according to Bloomberg UK.