The Financial Conduct Authority (FCA) has criticised Provident Financial’s plans to cap compensation for customers of its failed doorstep lending arm,.
The regulator has also said it would not oppose the lender in court. Provident has set aside £50 million under a scheme of arrangement to reimburse customers who were mis-sold loans. The FCA said it does not support the scheme, arguing that it offers consumers significantly less than they were owed. In a letter to Provident Financial, said it has ‘significant concerns about schemes of arrangement being used to circumvent paying customers their full redress entitlement.’
Despite its criticism, the FCA said it does not plan to formally oppose the scheme in court as the alternative is insolvency, which would leave customers with no compensation. Provident will appear at a High Court sanction hearing on 30th July that will determine whether or not the scheme is approved.
Malcolm Le May, Chief Executive, Provident Financial said “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 Consumer Credit Division (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 19th July and, if approved at that meeting, the court sanction hearing on 30th 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, 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.