Financial Conduct Authority  

FCA fines Woodford-backed credit card firm

FCA fines Woodford-backed credit card firm

The Financial Conduct Authority has fined the credit card arm of one of Neil Woodford's ten twenty holdings for failing to tell customers the costs of a payment protection insurance-type add-on.

Vanquis, the credit card arm of home credit company Provident Financial, has been fined nearly £2m and must pay nearly £170m compensation to its customers.

Provident Financial is the thirteenth biggest holding in the £7.1bn Woodford Equity Income fund, making up 2 per cent of the total investment.

The group, which announced full year results this morning (27 February),  has made a provision of £170.1m to deal with the Vanquis compensation and repayments, and has gone cap in hand to the markets to raise £331m through a rights issue at 331p a share, a nearly 50 per cent discount to market price yesterday.

The PPI-style product involved was called a repayment option plan (ROP), and was sold to Vanquis credit cardholders who struggled with managing their debt.

It allowed them to freeze their credit card account, take a payment holiday for one month per year, utilise a lifeline that would avoid late fees for one month per year, and receive text message alerts relevant to their account.     

But in 100 per cent of cases the FCA reviewed,  Vanquis did not tell customers the true cost of the plan, and did not explain to customers that the ROP could attract interest at the card rate, which was compounded unless the account balance was paid in full at the end of the month.

The interest rate on borrowings using the card could vary from 19.9 per cent to 79.9 per cent, and customers did not have all relevant information to make an informed decision when purchasing the repayment option plan, the FCA said.

Mark Steward, director of enforcement and market oversight at the FCA, said these represented “very serious breaches”.

“Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing,” he said.

The FCA requested Vanquis freeze sales of the ROP in April 2016.  Through a customer contact exercise in late 2016 Vanquis disclosed to its customers the full cost of the ROP and gave customers the opportunity to cancel it.Customers who had this product do not need to do anything. 

The firm will contact them directly in due course.

Vanquis' FTSE 250 parent company, Provident Financial has seen shares fall 35 per cent already this year, and until yesterday were down 80 per cent in the last 12 months. Its shares have rebounded this morning, up around 30 per cent after falling 12 per cent yesterday.

The company is the subject of several regulatory probes including an investigation into car finance affordability at its subsidiary Moneybarn, for which it has set aside £20m for the estimated cost, according to its accounts.

Provident chief executive Malcom Le May, said his key objective was to execute a turnaround of the Provident Financial Group, and he is making progress on that goal.