Regulator will not oppose financial group’s compensation scheme in court

Bradford-based lender Provident Financial Group says the Financial Conduct Authority (FCA) will not be formally opposing its compensation plan to help customers of its Consumer Credit Division. (CCD)

The plan, called a Scheme of Arrangement, was launched in response to the rising cost of customer complaints in CCD.

Provident Financial Group (PFG) began an operational review of CCD late last year.

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

A letter from the FCA to Provident has now stated: “The FCA has assessed the scheme by reference to the FCA’s statutory objectives and has concluded that the scheme is inconsistent with the FCA’s rules, principles and objectives.”

However, the FCA has decided not to appear in court to oppose the sanction of the scheme as a matter of company law, as the lenders “face an imminent insolvency” in which many redress creditors would receive less than under the scheme.

Also, it concludes the lenders are not continuing their business and “there appears to be no unfair benefit to the Group and its stakeholders at the expense of redress creditors.”

Malcolm Le May, chief executive, Provident Financial

Malcolm Le May, Provident chief executive officer, responded: “Although the FCA has confirmed it does not support the scheme and has summarised a number of concerns, I am pleased it has decided not to appear in court to oppose the sanction of the scheme.

“We continue to believe the scheme is fair and in the best interests of CCD customers.

“As I have said previously, we are committed to delivering the scheme successfully and the FCA deciding to not oppose the sanction of the scheme in court takes us one step closer to being able to do just that.

“The next step in the scheme process is the creditors’ meeting on 19 July and, if approved at that meeting, the court sanction hearing on 30 July.

“Without the scheme, CCD customers are highly likely to receive no redress payments, as it is highly likely the CCD subsidiaries would commence insolvency proceedings and would therefore not be in a position to make any compensation payments to customers.”

He added the scheme requires more than 50% of all creditors by number who vote on the scheme to vote in favour, and the total value of their claims to represent at least 75% of the value of the claims of all creditors who vote. 

The result of the combined creditors’ vote will be announced as soon as possible following the creditors’ meeting.

Assuming the vote is passed by the statutory majority at the creditor meeting, the scheme will be considered by the High Court at the sanction hearing on 30 July 2021.

As reported in May, Provident confirmed it was closing down its loss-making 141-year-old CCD division, which employed more than 2,000 people.

Le May added: “Since 10 May, when CCD was put into managed run-off its receivables book has reduced to £42m as at the end of June, and over 1,000 colleagues have now left the business.

“PFG’s view remains that the scheme and managed run-off is the best outcome for customers and its stakeholders and will present that case to the court.

“If the scheme is approved by a vote of the scheme creditors and the judgment of the court, it is expected to become fully effective in August this year and customers with valid claims are expected to receive compensation by late 2022.

“If the court were to reject the scheme, PFG intends to withdraw financial support for the CCD subsidiaries and the CCD subsidiaries would then be expected to commence insolvency proceedings, in which case customers would receive no compensation.”