On 22 August 2017, Provident Financial’s share price dropped c 70% after a profits warning. For a FTSE 100 company such large price moves are extremely rare.
The Daily Mail shrieked: Provident Financial goes into meltdown … now 800,000 customers of its doorstep collection business are at risk.
Provident’s doorstep lending re-organisation
Provident’s doorstep loans used to be mainly handled by “agents” – self-employed people, usually living in the area they collected from. In February 2017 in its Prelims, the CEO talked about the stable performance of home credit and announced Provident was re-organising its home credit business to be more efficient:
- 4,500 self-employed agents were being replaced by 2,500 employed staff;
- lending decisions in future would be made centrally, not by the doorstep collectors.
The reorganisation has gone badly wrong
In April Provident had estimated the loss from the transition period to be likely to be an acceptable £15m. Two months later it was saying:
Recent collections performance has deteriorated, particularly through May, and the effect has been reassessed at up to £40m.
But it continued encouragingly:
With the vast majority of new field based roles having been filled, June collections performance is stabilising. However, the switch over to the new operating model in early July will deliver a significant step-up in resource and direct control over the field organisation, including all collections activities. From this point the rate of collections will begin to normalise.
The announcement on the 22nd of August showed that, far from normalising, things have deteriorated further:
- loan collections performance is currently running at 57%, compared to 90% last year;
- new loans are £9 million a week lower than in 2016;
- pre-exceptional loss of the business is now expected to be between £80m and £120m.
The company is blaming problems with the software that schedules visits to customers, with the new debt collectors being sent to the wrong addresses, or the right addresses at the wrong times, or customers being visited by more than one debt collector. There are reports that some of the previous, experienced agents are switching to work for other doorstep lenders, possibly taking their best customers with them.
Why did Provident make this change?
It may sound as though the move away from its traditional agent structure was a foolish move. But Provident probably had little option. The previous operation, where agents had control over credit decisions, could too often lead to irresponsible lending. Far too many people have had Provident loans continuously for many years, with little or no affordability checks being carried out.
The Citizens Advice report “Debt on your Doorstep” contained some horrific examples of inappropriate pressure on borrowers. Those would have been rare, but the problems I listed on my Can you get a refund of interest on doorstep loans? page were much more common.
Vanquis under FCA investigation
The home credit problems though were at least known about previously, even if the management appears to have badly underestimated the costs and length of the transition period.
But the second major announcement in the August profit warning was not expected at all:
Vanquis Bank is co-operating with an investigation by the FCA into the ROP ancillary product. ROP currently contributes gross revenues, before impairment and costs, of approximately £70m per annum.
ROP is a sort of insurance add on to the Vanquis credit card that makes PPI look like a bargain. It is one of the “traps” of poor credit cards customers should avoid:
if you are paying 50% as your interest rate, this “little extra” will increase it to 66%. And, you pay this monthly fee even if you pay your balance in full every month when you wouldn’t pay any interest at all.
And what will you actually gain? Let’s be honest, your credit rating is pretty rubbish or you wouldn’t have to use one of these cards in the first place, it’s not worth paying to protect. And the kind suggestion that they will freeze interest for two years if you get into difficulties – well even payday lenders would do that!
It’s good that the FCA has concerns about the ROP product and is investigating the period from 2014 to 2016. Vanquis has agreed to suspend sales of the ROP in April 2016.
So far as I am aware, this FCA investigation was news to Provident shareholders. With the revenue being material, you have to wonder if it shouldn’t have been disclosed before.
UPDATE Vanquis made to pay redress
In February 2018 the FCA announced that it found 100% of the ROP sales calls it listened to showed mis-selling, see the FCA’s press release The FCA fines Vanquis £1,976,000 and orders Vanquis to pay £168 million compensation to customers.
Any implications for other lenders?
A lot of people are nervous about the level of borrowing in Britain, looking for early warnings – the so-called canary in the coal mine – that people are starting to default on debts. But the fall in Provident’s doorstep collection rate is not being blamed on over-indebtedness or squeezed household budgets. Instead, it seems to be mostly company-specific, resulting from the botched reorganisation and Vanquis FCA investigation.
Can you get a refund from Provident?
Debts keeping you awake at night?
Ombudsman refunding most guarantor loans
Mr O says
Hi Debt Camel,
I do wonder though – the reorganisation sounds bad, but probably was necessary to meet FCA standards in CONC 5 and CONC 7. There will be closer controls on the newer employed staff and better supervision standards. Provident would have been the major target as the biggest share of the market, but it will tell the FCA everything about the model probably operated by most lenders in the market. Vanquis aside, the other door-steppers may have to adjust similarly. From chapter 3 of the FCA’s recent review of high costs credit – https://www.fca.org.uk/publication/feedback/fs17-02.pdf:
‘…We will investigate these further with the aim of issuing a Consultation Paper on proposed solutions to our concerns in Spring 2018. We are particularly concerned about Rent-to-Own, Home-Collected Credit and Catalogue Credit, as well as wider concerns about consumers’ long-term
indebtedness.’
…Home-Collected Credit – we will focus on particular features of the business model which may incentivise consumers’ long-term indebtedness and where we identify harm, explore options for potential action to protect consumers.’
I may be wrong entirely, but I suspect there’s more to follow on this.
Thanks for sharing.
Sara (Debt Camel) says
Absolutely. Keeping the old model was never really an option.
Nick Pearson says
Excellent article, as ever, DC. One thing I would add in relation to:
4,500 self-employed agents were being replaced by 2,500 employed staff;
lending decisions in future would be made centrally, not by the doorstep collectors.
As i understand it, it was the FCA that insisted on this change in the operating model.
Sara (Debt Camel) says
yes, that was my understanding but I couldn’t find a written source for it…
Steph says
I don’t believe I have ROP now, but think I may have done a couple of years ago. Is it worth putting in a complaint?
Sara (Debt Camel) says
I’ll be writing a post about this in the next week or so – look out for it!
David Eppel says
stock market bottom feeders have bought it up to 747. The stock market has no conscience and little sense, yet it has £400 billion in QE
GMA says
Just missed a call from Provident, listened to the voicemail, despite my complaint against them being with the FOS, (they never mentioned that), they wonder if I might require some assistance over the Christmas period!
Sara (Debt Camel) says
how kind!
Lewis says
Hi I had a loan in 2007/2008, I just recently applied for a house and failed on a ccj I never knew I had from nov 2016, I got the ccj number from my estate agent and called the courts to find out what it was, they told me it’s from provident £303. I had no knowledge of this and haven’t lived at that address since 2009, that is my mum’s address and is the address they have on file. What do you suggest I should do about this? How can I get this ccj removed from my credit file?
Sara (Debt Camel) says
Phone National Debtline on 0808 808 4000 and ask them what you need to do to “set aside” this CCJ.
Amira says
From experience and peoples feedback. Is the longer provident take the better chance of getting a refund? Also, do they make decent offers?
Sara (Debt Camel) says
“Is the longer provident take the better chance of getting a refund?”
Not so far as I can see. I think a long wait means no one has looked at your case at all, nothing else.
“Also, do they make decent offers?”
Some people are happy to accept their offer, some aren’t. they don’t tend to offer a “full refund” of all interest for all the time you were borrowing, but if your loans tended to get bigger, then just having a refund on the more recent ones can still be a reasonable refund.
Jon says
Hi sara just bit of advice really . I sent my complaint to f.o.s. but end of march i received a chq from provident they only upheld and paid me 3 of my loans . I banked the cheque as i am self employed and needed the money at this moment in time due to covid 19. My work has dropped . But couple days ago ive had reply from f.o.s. saying provi should have upheld at least 12 off my loans i had. Which would have been lots more refund than provi paid me !now i have banked cheque does this mean this is the end of my complaint and cannot take this any further many thanks.
Sara (Debt Camel) says
I suggest you talk to your adjudicator.
anne says
Hi, I have put a complaint in against Provident due to unaffordable loans, I have had loans from them continuously since 2005! I also have an outstanding Vanquis credit card and Vanquis loan which have now been passed to a debt collector, do you think I should put in a claim against the Vanquis loan and credit card as well?
Sara (Debt Camel) says
I don’t know, you haven’t said anything about these debts. They may originally have been affordable until you lost your job – in that case you wouldn’t win an affordability complaint and need debt advice on what your options are – talk to StepChange.
So were the loan repayments unaffordable when you took the loan? If they were there is a template letter here: https://debtcamel.co.uk/refunds-large-high-cost-loans/ to use.
For the Vanquis credit card, read https://debtcamel.co.uk/refunds-catalogue-credit-card/. These complaints work best when your credit limit has been increased to too high a level.
Anne says
Hi sara, apologies for the vaugeness, i had many years of provident loans, which i have now submitted a claim about several weeks ago and i am still awaiting a response, i also managed to get a vanquis credit card and vanquis loan along side this which combined totalled over 6k is my understanding correct that all 3 of these are under the same company? If so do i stand a chance with vanquis loan and card as i had about 8 credit cards, 2 door step lenders, payday loans and likely loans as well
Sara (Debt Camel) says
You can send a complaint to Vanquis about your credit card and loan if you think Vanquis should have known from your credit records that they would be unaffordbale for you.