Savings to ditch the doorstep loan arm: The move will push desperate borrowers into the hands of their loan sharks, experts warn
- Demolishing the shutters will shock the sub-prime industry, which provides loans to people with patchy credit histories.
- Doorstep loans are where the lender calls the borrower’s home to collect repayment payments, usually at high interest rates.
- Industry insiders have warned that the sector may run the same way as payday lending, which has completely disappeared since Wonga’s closure in 2018.
Provident Financial is closing its lending business on its doorstep after 141 years, The Mail on Sunday reveals.
As part of this dramatic move, the FTSE250 will also shut down its online lending business, Satsuma, leaving Provident to focus on its credit card business, Vanquis Bank, and its auto financing operation, Moneybarn. A source familiar with the plans said the company was preparing to notify shareholders when it publishes its annual results on May 10.
The source said the closing of the company’s losing consumer credit division would boost shares of Provident, which closed at £ 2.45 on Friday, down a fifth at the start of the year. A Provident spokesman declined to comment.
Under pressure: tearing down the shutters in Britain’s oldest doorstep lending business will send shock waves through the sub-prime industry
Removing the shutters from Britain’s oldest lending company – which has more than 380,000 clients – will send shock waves through the sub-prime mortgage industry, which provides loans to people with patchy credit histories who are struggling to borrow from major banks.
Doorstep loans are where the lender calls the borrower’s home to collect repayment payments, usually at high interest rates. Industry insiders warned last night that the sector may go the same way as payday lending, which has nearly disappeared since the industry-leading Wonga shut down in 2018.
The companies, including Provident, faced a crackdown by the city watchdog and a torrent of customer complaints. But there are concerns that desperate borrowers will fall into the hands of illegal sharks if the industry is wiped out.
According to one source, Provident is preparing to withdraw from the market with a so-called “collection” plan, as it will attempt to recover the loans while slowly completing the entire process.
The source said: ‘The collection period, given their average loan turnover, would be a maximum of 12-18 months. To encourage people to pay off, you are lending back to certain groups, such as those with larger balances. You need to keep them in the relationship to get rid of them kindly, reduce their dependence, and get maximum attainment. Savings lenders and other short-term lenders have come under enormous pressure from claims management firms and the sharp rise in the number of complaints endorsed by the Financial Ombudsman Service.
In the last six months of 2020, the Ombudsman flooded 10,000 complaints about Provident and 13,000 about rival Amigo. More than seven in ten savings complaints were upheld.
This has forced Provident and Amigo to create compensation plans that reimburse only a portion of customer claims. Provident’s £ 50m plan for claims on loans issued by its doorstep arm and Satsuma before December will be voted on by clients and obtained statutory approval in July. It has already warned that it will enter the administration if the plan is not approved. But the Financial Conduct Authority has raised concerns about the proposals as it threatens to leave claimants unchanged.
Satsuma, which has 136,000 clients, has already stopped lending to new clients while the opening of Provident’s business tightens its lending standards. Provident is also under investigation by the FCA about the way it has assessed clients ’loan tolerance. But one of the consultants, Trifin Partners, said that by not controlling the claims-management firms that are flooding mortgage lenders with compensation claims, the FCA is allowing a legitimate industry to be pushed to the brink of collapse.
This created a “ criminals’ gap to bridge the gap, ” Trevin said, in which drug traffickers hide behind micro-lending “ shells’ ‘to launder money in council real estate, enforcing loan repayments at extremely high rates of interest combined with abuse, physical violence and predation. Sexual behavior to pay debt.
Provident’s plans come amid rumors of the acquisition of Amigo, which was founded by former petty criminal James Binamore, driving its share price up 12 per cent.