Financial group in crisis as FCA opposes rescue plan

Provident Financial Group has been plunged into a fresh crisis as it seeks to limit the damage of major problems in its troubled Consumer Credit Division (CCD).

The Bradford-based group has put £65m aside to deal with compensation claims from CCD customers.

It is also seeking to set up a Scheme of Arrangement for the division, although if this fails the group said it was “likely” the division would be put into administration or liquidation.

The financial group said the “wider repercussions” of such an action “would be uncertain”.

But Provident acknowledged the Financial Conduct Authority (FCA) “has made it clear it will not support the Scheme” principally because redress creditors will receive less than the full value of their claims.

CCD has said it expects to be able to resolve the FCA’s other concerns before the first court hearing, but this will remain a sticking point.

Separately the FCA has launched an investigation into the consideration of affordability and sustainability of lending to CCD customers.

The Bradford-based group’s share price fell more than 25% this morning on the news.

Provident began an operational review of CCD late last year.

It has decided to pursue a Scheme of Arrangement because it can no longer treat customer complaints as part of its operating costs in the wake of the pandemic’s impact on its profitability.

In a statement the group said: “PFG believes handling all outstanding and new relevant claims pursuant to the proposed Scheme in this manner would ensure a fairer and more equitable outcome for all customers, although redress payments ultimately determined may be significantly less than the amount claimed.

“If the Scheme is not approved, it is likely CCD will be placed into administration or liquidation. If this were to happen, CCD customers would not be expected to receive any redress payment.”

Provident has set aside £50m to fund legitimate Scheme claims with £50m and will cover costs estimated at £15m.

The separate FCA enforcement investigation into CCD dates from a decision by the Financial Ombudsman Service last February into the complaint handling process and how the division has applied it in the year since.

Provident added: “The appointment of investigators does not mean the FCA has determined that rule breaches or any other contraventions have occurred.”

The investigation is not expected to be completed until next year.

In 2017, a profit warning within CCD was central to the then-FTSE 100 company seeing two-thirds of its market value lost in a day as its share price crashed.

Although the group eventually survived that crisis – and staved off a hostile takeover bid – its share price today is more than 90% lower than it was less than four years ago.