Provident Financial Group (PFG) has revealed that it is being investigated by the Financial Conduct Authority (FCA), with the regulator looking into issues including whether the firm carried out proper affordability checks before lending to borrowers.

The FCA says that it will look at the ‘affordability and sustainability’ of loans made in the year to February 2021.

The company has written to 4.3 million customers and has also warned that its consumer credit division (CCD) could collapse into administration unless customers agree to a reduction in compensation payments for mis-selling. The firm has seen a rise in complaints against the CCD by claims management companies, with analysis showing that it made £25 million worth of payouts in the second half of 2020, compared with £2.5 million in H2 2019.  Provident has put aside £65 million to deal with compensation claims.

It is also seeking to set up a Scheme of Arrangement for the division, although if this fails the group said it was “likely” the division would be put into administration or liquidation.

In a statement, the company said “PFG believes handling all outstanding and new relevant claims pursuant to the proposed Scheme in this manner would ensure a fairer and more equitable outcome for all customers, although redress payments ultimately determined may be significantly less than the amount claimed.”

“If the Scheme is not approved, it is likely CCD will be placed into administration or liquidation. If this were to happen, CCD customers would not be expected to receive any redress payment.”