Provident Financial wrote to former clients telling them to use affordable credit providers and credit unions for future borrowing, as the city watchdog criticized it today for its arbitrary mis-sale compensation scheme.
Today around 280,000 customers of the closed-end lending arm will receive emails directing them towards more than 250 credit unions in the UK, a group of nearly 50 affordable credit providers that are part of the Responsible Finance Authority.
These organizations offer credit on more affordable terms than mortgage lenders like Provident, give clear information about how much to repay, and won’t lend to customers if they think they’ll overextend themselves.
Provident Financial is a personal credit company based in Bradford, UK
Some also do not offer cash loans, instead paying money for essential items – for example washing machines or refrigerators – directly to the retailer.
Provident’s doorstep lending arm went into administration in March and ceased lending on May 10.
Door lending is a form of high-cost, short-term credit where payments are collected at the home of the borrower.
A Provident spokesperson said, “People need access to credit, and we felt telling customers where credit could be available to them now was the right thing to do.”
Fair for You, one of the largest providers of affordable services tagged in the letter, warned low-income borrowers to avoid predatory lenders and illegal loan sharks looking to “make a quick buck for vulnerable families.”
She said they may be looking to take advantage of mortgage lenders who are falling behind in the market by targeting their former clients.
James Wilkinson, interim CEO of Fair for You CIC, said: ‘We know that millions of people across the UK need to borrow money on a regular basis to buy household essentials and even food.
The CEO of affordable credit provider Fair for You CIC has warned former customers of doorstep lenders about credit offers that sound too good to be true.
If you are in this situation, please do not be tempted by illegal money lenders, shady individuals, or offers that sound too good to be true.
“Make sure anyone you borrow from is regulated by the Financial Conduct Authority, and that there are online reviews or customer testimonials that show they are trustworthy.”
Provident said its doorstep lending business had become unprofitable due to the emergence of claims management companies that had filed thousands of missale claims.
It made payments of £25m in the second half of 2020, compared to £2.5m in the same period in 2019.
Provident has set aside £50m to compensate customers who have missold loans through its lending arm under a so-called ‘arrangement scheme’.
Today, the Financial Conduct Authority wrote to Provident to express its disapproval of the scheme, saying it was offering customers less than they were entitled to and describing the £50m contribution as a “potentially arbitrary number”.
Doorstep lenders are short-term financing providers who collect from borrowers’ homes
“FCA has significant concerns about arrangement schemes used to circumvent payment of a full compensation entitlement to customers in the manner proposed by the scheme,” it said.
But despite the FCA’s concerns, it has said it will not oppose the scheme in court when Provident appears at a hearing on July 30.
She said this was because Provident faced imminent bankruptcy in which creditors would likely receive less than they would receive under the proposed scheme.
Follow up on the FCA’s letter: [Provident] The Group has clearly stated that it does not intend to increase its contribution or share profits with equity creditors, so that compensation creditors are left with a ‘take it or leave it’ choice between a very low recovery under the scheme or a lower recovery (if any) in bankruptcy”.
The FCA has asked Provident to include its letter in the evidence it submits for the hearing.
Thrift chief executive Malcolm LeMay said: ‘We continue to believe the scheme is fair and best serves the interests of the CCD. [consumer credit division] Client.’
Savings creditors will vote to approve the plan on July 19.
More than 50 percent will need to vote for it to be approved, and their claims must account for at least 75 percent of the total value of claims.
Another subprime mortgage lender, Amigo Loans, had its own compensation plan plans that set historic complaint payments that were rejected by the Supreme Court in May.
She has now said she is at risk of going bankrupt.
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