Provident Financial Group (PFG) has proposed a Scheme of Arrangement to reduce the refunds it has to pay to customers given unaffordable loans through its Provident Personal Credit (PPC) subsidiary.
There are three stages in getting a Scheme approved. Provident is now in the second stage – Voting:
- On 22 April 2021, the voting arrangements for the Scheme were approved by the court.
- From 17 May to 19 July, customers could vote to approve or reject the Scheme. A large majority approved the Scheme.
On 14 July, the FCA published its second letter of concerns about the Scheme. The FCA says the Scheme went against its principles but as the alternative is insolvency and the doorstep lending business is being closed, the FCA will not oppose the Scheme in court.
- On 30 July, a second court hearing will decide whether the Scheme should go ahead.
My previous article Provident proposes a Scheme to cap refunds gave the background to the Scheme – the increasing numbers of affordability complaints, the changing legal and regulatory environment, as well as the pandemic.
An overview of the Scheme
4.3 million customers affected
PFG has operated Provident Home Credit, Greenwood Home Credit, Satsuma payday lending and Glo guarantor lending through its PPC subsidiary. PFG is closing its PPC subsidiary and no longer offers doorstep or payday loans.
The Scheme covers loans taken after April 2007 for all of these brands.
4.3 million people have had one of these loans.
The Scheme does not affect PFG’s Vanquis and Moneybarn customers. The credit card lending and car finance operations are profitable and go through a different subsidiary so PFG is not including them in the Scheme.
How the Scheme will work
The Scheme will cap the refunds PFG has to pay to Provident customers.
Many people have been making complaints the loans were unaffordable and winning these complaints at the Finacial Ombudsman.
Provident is proposing to put aside £50 million to divide between the people who have claims for unaffordable loans upheld in the Scheme. This is a LOT less than the “real” refunds people should get.
Provident has given an example suggesting people may get paid 10% of their proper refund. But my numbers suggest that is too optimistic and the refunds may be a lot lower, see below for details.
If the Scheme is not approved, PFG says its PPC subsidiary which operates the Provident doorstep lending and Satsuma brands will go into administration.
In administration customers can also make a claim for unaffordable lending:
- there would be no cash refunds for customers;
- customers with upheld Claims who have a current loan would have their balances reduced or cleared through the “right of set-off”.
The Scheme Timetable
17 May – 19 July – Voting on the Scheme
Over 428,000 of the approximately 4.2m creditors affected by the Scheme voted , approximately 420,000 voted in favour of the Scheme, while approximately 7,500 voted against.
30 July – Second Court Hearing
This will consider the results of the voting and the fairness of the proposed Scheme. It will decide whether the Scheme should go ahead.
The FCA has said it will not oppose the Scheme in court.
August 2021 – February 2022
If the Scheme is approved at the Second Court Hearing it will start.
People who voted on the Scheme will automatically have had a Claim submitted. People who didn’t vote will be to submit a claim on an online page for six months.
First half 2022
Provident expects payments to be made. I think it may be late in that period as Provident will have to allow time for appeals to be made and reviewed.
How will Provident decide which loans are unaffordable?
Under the Scheme, customers can put in a claim if they were given an unaffordable loan. A loan is only affordable if you could pay it and still be able to pay all your other debts, bills and living expenses. If paying a loan left you so short you had to borrow more, it was probably unaffordable.
Provident will decide whether to uphold each claim. It has listed the factors it will look at in Scheme Claims Methodology but these are pretty vague.
This is like someone who might buy your house saying they will look at the price, the area, the number of bedrooms and the state of its decoration when deciding whether to buy it. Sensible things… but it doesn’t give you much clue if they will make an offer on your house!
So you may not feel you have any idea how many of your loans Provident may decide were unaffordable and should be refunded.
Provident will appoint an independent person to look at any appeals. You won’t be able to appeal Provident’s decision to the Financial Ombudsman which most people would prefer to do.
Provident will then calculate the redress on the loans they say are unaffordable – this will be the interest paid on the loans plus 8% statutory interest.
What evidence may you have to produce?
Provident says customers may be asked to produce evidence about their claim.
Some people who have current complaints with Provident that are now suspended until the Scheme starts have been told that they should start gathering evidence about CCJs, defaults and any health issues.
Many people won’t have bank statements and old credit reports for loans that are more than 6 years old.
If people can’t produce the evidence Provident asks for in 30 days, Provident will decide their claim on the basis of what it already knows. The problem here is that Provident often didn’t make any credit checks on old loans…
We don’t know how Provident will make a decision in these cases and people may be worried their claims will just be rejected.
What customers might get from the Scheme
If you still owe a balance
If your claim is upheld and you still owe a balance, your balance will be reduced or cleared by the refund (this would also happen if Provident goes into administration).
After this reduction, if you still owe a balance after this reduction, you can make an arrangement to repay it at a more affordable rate.
If the refund clears your balance, you will only get a small percentage of the extra amount as a cash refund.
If you are owed a cash refund
Customers whose loans have been repaid will have their cash refunds paid out of the £50 million Provident is putting aside for this.
There will not be nearly enough money in this pot to pay full refunds,
so customers will only get a small percentage.
The £50 million will be divided up between the customers who are owed a cash refund. They will all get the same “pence in the pound” percentage of their proper redress.
Provident uses a total redress figure of £500m in its illustrative example. This may be too low or too high, depending on how many people apply for a refund and how many of their loans are upheld. I think it is a lot too low.
If Provident’s £500m figure is right, then customers should receive 10% of the value of their proper cash refund.
But I think this may turn out to be under 2%. See Provident’s Scheme – will customers get less than 2% ? for details.
So if you should have had a refund of £2,500, Provident thinks you might get £250 back and I think you might get less than £50.
Is this Scheme fair?
If £50 million was genuinely all the money there was available, then you may think “Well that’s life, that’s all there is”.
But it isn’t!
PFG is not a company that is running out of money. Its Vanquis and Moneybarn operations are profitable and it is planning on expanding them.
If PFG wanted, it could delay expanding its other operations and use the money saved to pay more to the customers who should get refunds. or it could ask its shareholders to contribute money through a rights issue or a share placing.
But PFG seems more interested in its shareholders’ interests and not in giving its customers adequate compensation.
The FCA has pointed out in its letter about the Provident Scheme:
the FCA does not support the Scheme for the reasons set out in this letter and the FCA does not believe that the Scheme is the fairest compromise that could have been offered to customers with valid redress claims by the Group.
The FCA decided to oppose the Amigo Scheme in court, which led to the court refusing to approve it. Will the same happen for Provident? That is much less likely as the FCA has said it will not oppose the Scheme in court
Some FAQs for customers
“I still have a Provident loan – do I have to pay it?”
This loan still legally exists. This will be the case whether the Scheme goes ahead or Provident goes into administration – your loan is not going to disappear. But it may be sensible for you to stop paying Provident in two cases.
1) where the repayments are more than you can afford. Ask Provident for an affordable payment arrangement now. This applies whether or not you are making an affordability complaint. Provident does not add on any extra interest or charges in this situation.
2) where you have already repaid more to Provident for this loan than you borrowed, or where you had previous loans you also think were unaffordable. Here you should make a Claim to the Scheme – if you win this complaint, your loan balance will be reduced or written off.
It may therefore be better if you stop paying Provident now, as for each payment you make from now on you are likely to get back only a small percentage as a refund.
If you are not sure whether to stop paying Provident, talk to National Debtline on 0808 808 4000. Or talk to your DMP firm if the loan is included in your DMP.
“Should I complain now?”
No, any complaint will be ignored by Provident at the moment.
You will be able to submit a claim to the Scheme if it is approved.
“What will happen to my FOS complaint?”
The Ombudsman has stopped handling these cases. If the Scheme is approved at the second court hearing, all open FOS Provident and Satsuma cases will be sent back to Provident to be decided in the Scheme.
“Can I claim if Provident rejected my complaint before? Or if I accepted a poor offer before?”
Yes. Provident will assess your claim again.
If they refunded say two loans before and they now think they should have refunded 7, then you will get the extra refund on the other five loans – but only paid at 10p in the £ or whatever the payout turns out to be.
“Should I cash the Provident cheque I have?”
Yes, do this now. You will still be able to put in a claim to the Scheme.
What do you think?
You can use the comments below this article to comment, ask questions or see what other customers say.