The Financial Conduct Authority (FCA) has published a second “letter of concerns” with regards to Provident’s proposed consumer credit division (CCD) scheme of arrangement.
The scheme was set up to assess and pay compensation claims against the sub-prime lender.
The regulator’s biggest concern is that consumers are “being offered significantly less” than the full amount of redress they’re owed, stating that some customers may be “worse off compared to in an insolvency”.
Provident first announced its intention to launch the CCD scheme on 15 March 2021. That same month, the regulator launched an investigation into the lender’s conduct, focusing on the affordability and sustainability of lending to customers.
In its latest letter to Provident, the FCA also raised concerns that redress to creditors had not been consulted on the terms of the scheme, and that those terms arose out of a unilateral action by the firm rather than any negotiation with the redress creditors.
The regulator has noted that Provident will make £50m available through its compensation fund, however has said the company has “stated clearly” that it doesn’t intend to increase its contribution or share profits with the redress creditors. And while it welcomes this contribution, it believes there’s scope for the company to increase the level of funding of the scheme - in turn increasing the expected return to scheme creditors.
Despite this, the FCA has said it “does not plan to formally oppose” the scheme in court. This is because the likely alternative to a scheme is the insolvency of the lender and, in this scenario, consumers are likely to receive no redress.
In response to the FCA’s letter, Provident’s chief executive Malcolm Le May said: “Although the FCA has confirmed it does not support the scheme and has summarised a number of concerns, I am pleased that the FCA has decided not to appear in court to oppose the sanction of the scheme.
“We continue to believe that 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.”
Provident’s proposed CCD scheme will be put to vote in a creditors’ meeting on 19 July. This would require more than 50% of all creditors to vote in favour of the scheme, and the total value of their claims to represent at least 75% of the value of the claims.
Assuming it passes with the statutory majority, the scheme will then be considered by the High Court for sanction on 30 July 2021. If approved, Provident expects the scheme to become fully effective in August 2021, with customers with valid claims likely to receive compensation towards the end of 2022.