The Financial Ombudsman (FOS)’s latest quarterly statistics, published on 25 August 2020, highlighted a rise in the number of complaints received about some types of high cost credit. In the period April-June 2020, new complaints about home credit rose by 77% to 1,166.
UPDATE in the second half of 2020, FOS was sent over 10,000 new Provident complaints!
Provident is the major lender in the home credit market, also known as doorstep lending. When Provident published its results for the six months ending 30 June 2020, it reported an increase in complaints during 2020 but did not give numbers.
In this article, I look at how Provident is handling affordability complaints.
If you have borrowed a lot from Provident, read A template letter to ask for a refund from Provident and think if you have a case to make a claim. There are thousands of comments below that article, so you can see how other people are getting on with their complaints.
Background – affordability complaints
The regulator’s rules say a lender has to make appropriate checks that a loan is affordable for the borrower. A loan is only affordable if the customer can repay the loan without having to borrow more money or get behind with their other bills and debts.
The current regulator is the FCA, but this duty to check affordability also applied before 2014 when the Office of Fair Trading (OFT) was the regulator.
If a lender rejects a complaint, the customer can send it to FOS for a decision.
If a loan is small, FOS would not expect a lender to make detailed checks. But one of the things it looks for is “re-lending”, where a lender keeps giving loans to a customer, as this can be a sign that the loans may be making a customer’s position worse, not helping them.
From 2015 increasing numbers of affordability complaints have been made first about payday lenders and now about other sorts of high-cost credit. Doorstep loans often involve prolonged re-lending. The FCA found that in 2015-17:
74% of home-collected credit consumers spent up to 12 months in continuous debt and around 10% had 12 or more loans.
and the recent PWC report said:
its use becomes habitual with customers relying on it as a source of income.
The standard affordability rules apply to Provident
Provident sometimes seems to suggest it is a special case, that the affordability rules are different, or matter less, for doorstep lending. It isn’t clear why.
When the FCA rejected calls for a limit on refinancing for home-collected credit, it noted that its rules already say that lenders must assess affordability before agreeing a new loan and must not encourage unsustainable refinancing. So the FCA was saying that the normal affordability checking rules apply to Provident.
The FCA’s recent review on re-lending was addressed to all high-cost credit lenders, including home-collected credit. It said:
We remind firms of our Dear CEO letter from October 2018, sent to all [payday lenders] (but which equally applies to other firms in the high-cost lenders portfolio). In that, we highlighted the risks in relation to repeat borrowing given that it could indicate a pattern of dependency on credit that is harmful to the borrower. Rigorous affordability assessments are key to avoiding harm in this area, and firms should ensure they are making proportionate and responsible assessments of the sustainability of borrowing.
Provident also points out its customers don’t need to take new loans if they are struggling as they could ask to repay more slowly, with no added interest. Provident said recently in a response to a customer’s affordability complaint:
I would like to highlight that had your Agent been aware of your financial difficulties then this would have been considered prior to issuing any further loans as it is not beneficial for you or Provident to issue loans knowing repayments cannot be maintained.
If you were unable to maintain your repayments your Agent would have been happy to make arrangements to suit your circumstances. Provident do not add additional charges or interest to loans when payments are missed, so a payment arrangement would not have increased how much you would have to pay back to us – this flexibility would also mean you could meet other priority expenses knowing you were not being financially penalised by us in doing so.
Debt advisers know it is usually simple to get Provident to accept a lower repayment offer. The problem is that many customers have no idea about this… Instead a customer who needed more money might be offered refinancing or an additional loan by their agent.
But in any case, a friendly approach to forbearance is simply not relevant to whether a lender made a proper lending decision for a loan. That would be like arguing that it is OK to break a speed limit because your car has very good brakes.
Provident’s complaint handling
FOS describes how it looks at affordability complaints in general in its page on Unaffordable lending.
In August 2020, the Kerrigan v Elevate judgment decided that if a lender breached CONC rules on affordability assessments, this was likely to constitute an unfair relationship under the Consumer Credit Act and redress could be a refund of interest paid on loans, which is what FOS typically orders if it upholds an affordability complaint. Although the lender in the case was Sunny, a payday lender, the arguments in the case seem to apply equally to other types of loans.
FOS has given hundreds of adjudicator decisions on Provident cases. And in March 2020 it published a Key Decision for a Provident case, setting out the legal and regulatory background in detail.
These Provident decisions largely follow the pattern of payday loan relending cases, with the first few loans being not refunded as the lender did not have to make detailed affordability assessments, but after a certain point the lender should have looked more closely. If detailed checks on the customer’s income and expenditure would have shown the loan was unaffordable, then the customer should be refunded the interest paid. If loans carried on without any significant break, then after some point all later loans may be assumed to be unaffordable.
Provident falls into line with the FOS approach in 2019
The FCA’s DISP rules explain that lenders should learn from FOS decisions:
DISP 1.3.2A These procedures should, taking into account the nature, scale and complexity of the respondent’s business, ensure that lessons learned as a result of determinations by the Ombudsman are effectively applied in future complaint handling.
But in 2018 and 2019 Provident was dismissing or making very poor offers to most complaints. These were not in line with FOS decisions, as is shown by the fact that customers have been winning about 85% of Provident cases. And in 2019 Provident rejected many FOS adjudicator decisions, leading to a backlog of cases building up.
Then in late 2019/early 2020, Provident settled all its outstanding FOS cases in line with typical adjudicator decisions. Here is one customer’s settlement:
But in 2020 Provident’s complaint handling is back to being poor
After clearing the FOS backlog, I had hoped that Provident would continue to settle new customer complaints using the same approach that FOS would. And Provident’s latest results said:
an increasing proportion of complaints are being managed internally, reducing referrals to the FOS.
Which sounds good.
But unfortunately, some people with strong-sounding cases are reporting being given rejections or poor offers. Here are a couple of recent comments on my Provident complaint page:
- In total I had 15 loans totalling £14,200, the interest charges were £14,063. They have offered £3670.03 (inc 8% interest). I think this amount is far too low as they have only upheld 5 loans (2,3,7,8,9) which were all of relatively low balances.
- I had 45 loans in total with interest amount of 16,173.98. I think their offer of £5,125 is low and random. They have upheld my complaint for 11 of the 45 loans. I can’t work out how they come to decide that loans 5,6,7,12,13,17,18,29,34,43 and 44 were unaffordable but the rest were affordable.
Those are not the sort of decisions you would expect FOS to make. In one case, in the middle of a string of loans Provident upheld a £1000 loan but decided the next loan for £2500 was affordable.
The FCA’s DISP rules say a firm should:
explain to the complainant promptly and, in a way that is fair, clear and not misleading, its assessment of the complaint, its decision on it, and any offer of remedial action or redress
but in the recent decisions, Provident is not setting out why it has selected some loans for a refund but rejected others as being affordable.
When Provident sends a response to a complaint, it usually also send a cheque for the calculated refund. If the customer cashes the cheque, this is accepting the settlement offer so they can’t take their case to FOS.
A fair way to handle complaints?
From readers’ comments, it seems that some Provident offers are poor and the letters, although lengthy and full of figures, don’t explain why some loans have been excluded. People may think their case has been assessed properly so there is no point in taking it to FOS.
And many Provident customers are in a vulnerable situation, on a low income and finding money hard to manage. The temptation to cash the cheque may be impossible to resist.
I think the FCA should look into Provident’s complaint handling. If it decides Provident’s offers have been systematically too low, it should tell Provident to re-assess the previous offers and pay a higher amount.