Payday and doorstep lenders have been with us for years. Unfortunately, some of them were lending at very high interest rates, with unpleasant practices such as aggressive debt collection, poor affordability checks, and overcharging fees.
On 1st April 2014, the Financial Conduct Authority became the regulator for these companies and began cracking down on unfair practices and excessive charges with new regulations.
Following these actions from the FCA, profits were drastically reduced for these companies. As a result, many firms either went into administration, liquidation or entered a scheme of administration, including Wonga, Cash Genie, The Money Shop and more.
On 4th August this year, it was the turn of Provident, who entered a scheme of arrangement.
What is a scheme of arrangement?
A scheme of arrangement is a legal agreement under Part 26 of the Companies Act to make an arrangement with their creditors and set out the amount they will be paid, varying their rights.
There must be a vote of all creditors, shareholders and members to agree to the scheme. There are several steps a company must follow to get a scheme approved, including the issue of a practice statement letter and explanatory statement to creditors and the vote itself. A sanction hearing must then take place for the court to ensure the scheme is fair.
The scheme comes into force once the court has agreed on it and sent a sanction order to the Registrar of Companies in England & Wales.
What went wrong for Provident Personal Credit Limited?
Provident traded as Provident, Satsuma, Glo and Greenwood Personal Credit Limited. In many ways, the downfall of Provident was similar to what happened with other payday loan companies, including Wageday Advance, Quick Quid, and 247 Moneybox. A raft of complaints about the lack of affordability checks and other issues took many payday lenders out of business.
The story for Provident began in the 1880s, providing doorstep lending and repayments. They continued with this until 10th May this year, when all lending stopped.
The new FCA regulations, which came into force in 2014 and 2015, introduced a cap of 0.8% per day on the total amount borrowed, set default payments at £15 or less and stated that “the overall cost of a payday loan should never exceed 100% of the amount borrowed”.
These new regulations affected many payday loan companies and would have reduced profits for Provident and its brands, just like other lenders. The FCA estimated, when they presented the proposals in July of 2014, that payday lenders could lose around £420 million in revenue per year in total.
In 2017, Provident had a reorganization of its doorstep lending, opting to centralise lending decisions and reduce self-employed agents, replacing 4500 agents with 2500 employees. The reason for this was because with doorstep agents making the decisions, there was far too much scope for irresponsible lending with few affordability checks.
Due to difficulties with the reorganisation, on 22nd August 2017, Provident put out a profits warning and the share price dropped by around 70%, with losses expected to be somewhere between £80 and £120 million.
Early in 2021, the Financial Ombudsman Service (FOS) produced statistics for the last half of 2020. Provident was one of the top two companies in the second part of 2020 with the newest FOS cases against them (Amigo was the other company). With over 10,000 new cases and an uphold rate of 75%, this was clearly a serious problem for Provident.
From there, it really was downhill for the company, and in March 2021, they put forward a scheme of arrangement to cap claims for compensation and refunds for both Satsuma, their payday loans arm, and Provident doorstep lending.
On 22nd April 2021, the convening hearing was held, and consumers voted to accept the scheme. The sanctioning hearing took place on 30th June, and the final decision to approve the scheme was made on 4th August 2021.
The FCA stated that it didn’t support the scheme, but as Provident was closing and no longer offering doorstep lending, they didn’t object in court.
This scheme only leaves creditors with a partial payment, but the court agreed the scheme after Provident made the point that paying out in full would cause the company to go under, and claimants would then be left with no payout at all.
Four million people can now make a claim against Provident.
From the company website, “…the tough economic situation has resulted in us making the difficult decision to stop lending.”
Provident made a pre-tax loss of £113.5 million in 2020 and most of those losses were from the home credit division, which includes payday loans and doorstep lending. The company is now planning to either sell off or wind down its home credit business.
What are the consequences for consumers?
For consumers, the scheme of arrangement is unsatisfying as only £50 million has been allocated to pay off all claims, which means they are highly unlikely to get their full amount of compensation back, and the more people that make a complaint and are successful, the less the amount will be.
However, consumers whose complaint is accepted should still get something back, and in many cases, their credit record will be cleaned too, which can make all the difference to their creditworthiness.
Some customers may also find that they no longer have to pay interest on their outstanding loans.
One further consequence for people on low incomes or with little affordability is that it may now be harder for them to access credit elsewhere.
What to do next
If you had a loan from Provident, or any of its other brands, between 6th April 2007 and 17th December 2020, you can find more information on the Provident Scheme of Arrangement site.
If you need to make a claim, visit the claims portal direct. It is better to claim with the company directly as most claims management companies will take a percentage, leaving you with less money.
You will have six months to make a claim, so don’t delay.
Provident also owns Vanquis and Moneybarn, which aren’t included in the scheme of arrangement. So if you need to make a claim with them, you should still be able to get full payment if successful.
Is it a case of professional claims companies unfairly sending so many claims to payday lenders that they can’t afford to pay them and the FCA throwing ever-changing regulations at them? Or is it the case that companies with unfair lending practices are finally getting their just desserts? We’ve given you the facts, and we’ll let you decide.
If you need credit, choose a reputable company like Cobra Payday Loans. We’ll send your loan request to our panel of lenders, giving you the best chance of finding a loan company that’s right for you, with an affordable repayment plan.