Loan Shark Route For Borrowers As Provident Ends Doorstep Loans?
Providence wants to shed door-to-door credit: Moving will drive desperate borrowers into the hands of loan sharks, experts warn
- Pulling down the shutters will send shock waves through the subprime industry, which lends to people with patchy credit histories
- Door-to-door loans, when a lender visits the borrower’s home to collect repayments, usually come at high interest rates
- Industry insiders warned the sector could go the same path as payday loans, which have all but gone since Wonga closed in 2018
Provident Financial is closing its doorstep business after 141 years, The Mail on Sunday reveals.
As part of the dramatic move, the FTSE250 company will also shut down its Satsuma online lending business, allowing Provident to focus on its credit card business, Vanquis Bank, and its Moneybarn auto finance business.
A source well aware of the plans said the company was preparing to present its annual results to shareholders on Jan.
Under Pressure: Pulling down the shutters on Britain’s oldest doorstep business will send shockwaves through the subprime industry
The source said the closure of the company’s loss-making consumer credit division should gain Provident’s stock, which closed at £ 2.45 on Friday, a fifth less than it had earlier in the year. A Provident spokesman declined to comment.
Pulling down the shutters on the UK’s oldest doorstep business, with more than 380,000 customers, will send shockwaves through the subprime industry, which is lending to those with poor credit histories who are struggling to borrow from major banks.
Door-to-door loans, when a lender calls the borrower’s home to collect repayments, usually come at high interest rates. Industry insiders warned last night that the sector could go the same route as payday loans, which have all but gone since industry leader Wonga closed in 2018.
Companies, including Provident, have been hit by the city watch and a flurry of customer complaints. But there are fears that desperate borrowers will fall into the hands of illegal loan sharks if the industry is wiped out.
According to a source, Provident is preparing to pull out of the market through a so-called “collect-out” plan that will attempt to reclaim credit while the whole operation is slow to unwind.
The source said: “Given the average maturity of their loans, I would set the collection period to a maximum of 12 to 18 months.
To encourage people to repay, you will sub-lend to specific cohorts, e.g. B. to those with the greatest credit. You need to keep them in the relationship to gently break them down, reduce their addiction, and get the most out of it. ‘
Provident and other short-term lenders have come under tremendous pressure from claims management firms and the surge in complaints confirmed by the Financial Ombudsman Service.
In the last six months of 2020, the Ombudsman was flooded with 10,000 complaints about Provident and 13,000 about its rival Amigo. More than seven out of ten providential complaints were confirmed.
This has forced Provident and Amigo to put in place compensation systems that only repay part of the customers’ claims. Provident’s £ 50million program for claims on loans issued prior to December by its home branch and Satsuma will be voted on by customers and legally approved in July.
It has already warned that these will be managed if the program is not approved. However, the Financial Conduct Authority has raised concerns about the proposals as they threaten to take the applicants short.
Satsuma, which has 136,000 customers, has already stopped lending to new customers while Provident’s doorstep has tightened its credit criteria. Provident is also being researched by the FCA as it assesses customers’ ability to afford credit. But advice
Trifin Partners said that by not controlling the claims management firms that flood subprime lenders with compensation claims, the FCA is pushing a legitimate industry to the brink of collapse.
Trifin said this “created a rift for criminals to fill the void” where “drug traffickers hide behind tiny front doors who borrow” clams “to launder money on public housing and loan repayments at excruciatingly high interest rates with abuse , physical violence and robbery enforce sexual behavior to pay debts ”.
Provident’s plans stem from rumors of a takeover of Amigo, which was founded by self-confessed ex-petty criminal James Benamor and whose share price rose 12 percent.