Provident Financial Group PLC Updates
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Provident Financial has confirmed plans to shut down its 141-year-old home loan business as its annual results highlighted pressure from the coronavirus pandemic and growing customer complaints about subprime lenders.
The Bradford-based company reported a pre-tax loss of Â£ 113.5million for 2020, up from a profit of Â£ 119million the year before. The biggest drag was a loss of Â£ 75million in its consumer credit division, which includes mortgage lending.
Malcolm Le May, Managing Director of Provident, said: âIn light of changing industry and regulatory dynamics in the mortgage industry, as well as changing customer preferences, it is with the deeper regret that we have decided to withdraw from the mortgage market. “
Jason Wassell, chief executive of the Consumer Credit Trade Association, which represents alternative and expensive lenders, said the decision showed “the current regulatory framework is not working for the market or its customers.”
“The result in this case is that access to credit will be reduced for hundreds of thousands of people.”
Provident has built its name as a home mortgage, or home loan provider, which involves a team of local agents who regularly visit borrowers to collect repayments and discuss their products.
Proponents believed that agents’ local expertise and personal relationships with borrowers enabled them to perform better than traditional bank loans to people with bad credit scores, but the approach was increasingly replaced. by digital models in recent years.
Provident’s business has also been affected by a series of self-inflicted and external difficulties. Its consumer credit division has been in deficit since a botched effort to modernize the unit in 2017, which led to a pair of profit warnings and an emergency rights issue. More recently, its recovery has been hampered by an increase in customer complaints that triggered an investigation by the Financial Conduct Authority.
The increase in complaints was prompted by professional claims management companies, echoing a larger trend in the subprime lending industry that also affected companies such as Amigo, the lender guarantor. Executives also accuse the Financial Ombudsman Service, which adjudicates customer complaints, of overstepping its mandate and encouraging huge volumes of complaints.
Provident has said he will either liquidate or sell the consumer credit division, with either option set to cost him around Â£ 100million.
The move will see Provident leave the more controversial areas of high-cost credit to focus on what it describes as âmid-costâ loans through its Vanquis credit card business and vehicle finance arm Moneybarn. Vanquis and Moneybarn both remained profitable in 2020, despite more than a quarter of Moneybarn customers requesting payment holidays during the height of the pandemic.
Results were slightly better than analysts’ average forecast, and the company said Vanquis and Moneybarn both reported “improving trends” in the first quarter of 2021. Provident shares nonetheless fell further. 10% at the start of the session.