Provident Financial’s share price has fallen more than 10% after the the City watchdog revealed it has launched an investigation into Moneybarn, a company controlled by the subprime lender that provides car loans to people with poor credit history.
The Financial Conduct Authority (FCA) will focus on how Moneybarn decides whether applicants can really afford its loans, and on how it treats customers who fall into financial difficulty.
Provident shares have fallen sharply since the beginning of 2017. It has issued two profit warnings, parted company with its chief executive and cancelled a dividend for shareholders. Last month it announced Manjit Wolstenholme, its executive chairman, had died suddenly aged 53.
Shares in Bradford-based Provident Financial fell nearly 20% in early trading after it announced the investigation and said it would work with the watchdog. The share price later recovered, closing down just over 10% at 790.5p.
It said: “The Provident Financial group aims to act responsibly in all its relationships, and to play a positive role in the communities it serves.
“The company will work collaboratively with the FCA to investigate the remaining concerns and resolve any outstanding related issues as soon as practicable.”
The FCA has been monitoring Moneybarn since it authorised the loans company to conduct consumer credit activities in June 2016 and Provident Financial, known as “the Provvy”, said Moneybarn had already “made a number of process improvements, including to the way it deals with future loan terminations”.
Neil Wilson, a senior market analyst at ETX Capital, said the investigation signalled “more trouble at the Provvy”.
“[The FCA investigation] adds to the woes for the embattled lender and is another headache for management at the worst time,” Wilson said.
Provident Financial has about 2.5m customers, and grew rapidly in the years after the financial crisis, stepping in to offer credit to people who could not secure loans from banks as they became more wary of risky lending.
Earlier this year it announced changes to its 130-year-old business model of sending self-employed sales agents door to door, offering loans and collecting debts, in favour of making greater use of technology.
The then chief executive, Peter Crook, unveiled plans to replace 4,500 sales agents with 2,500 full-time “customer experience managers” (CEMs), who would be connected to head office via iPads, with their time managed more efficiently as a result of analytical software.
The CEMs were given iPads but were sent to the wrong addresses, or the correct ones at the wrong time, and were unable to make sales or collect payments. As a result, debt collection rates fell sharply, from 90% in 2016 to just 57%, before recovering slightly to 65% in September.
Wilson said: “The real question is whether it can get its core doorstep lending business back in shape. On that front the outlook is very uncertain.
“While the numbers are showing some small improvement, the ‘fix’ in the home credit business retains the employed operating model which has been the source of the problems as agents have left in droves to rivals. The employment of 300 part-time collection managers – largely from the old agent base – was an admission that the new model is flawed.”
The FCA declined to comment on the investigation.
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