FCA writes to Provident over consumer redress concerns

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FCA writes to Provident over consumer redress concerns

The Financial Conduct Authority has written again to Provident Financial regarding its consumer credit division (CCD) scheme of arrangement, stating it was “inconsistent” with its rules.

The regulator published its second letter to Provident today (July 14) which outlined its concerns that consumers are being offered significantly less than the full amount of redress they are owed.

In the letter it said: “The FCA has assessed the scheme by reference to the FCA's statutory objectives and has concluded that the scheme is inconsistent with the FCA's rules, principles and objectives.

"Therefore, the FCA does not support the scheme and has summarised the serious concerns it has regarding the scheme in this letter."

However, the regulator decided not to appear in court to oppose the sanction of the scheme as a matter of company law.

"The FCA's assessment of the scheme against its statutory objectives is a distinct, and necessarily broader, assessment than whether the court will sanction the scheme as a matter of company law,” it said.

"In this case, the only likely alternative to a scheme is the insolvency of Provident Personal Credit Limited. We understand that in an insolvency scenario, without a scheme, consumers are likely to receive no redress," is added.

This follows the first letter in April when the FCA stated it wouldn’t support the scheme of arrangement.

In March, when the FCA first began investigating Provident, the firm said: “If the scheme is not approved, it is likely that CCD will be placed into administration or liquidation. If this were to happen, CCD customers would not be expected to receive any redress payment.”

In an update by Provident today (July 14), the firm said it has "engaged constructively" with the FCA prior to and since the market was notified of the intention to launch the scheme for CCD on March 15, 2021. 

It said the scheme was being proposed in response to the “rising cost of customer complaints in CCD for historic lending as a result of industry dynamics” which have changed the operating environment for CCD. 

Malcolm Le May, chief executive officer, 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. The next step in the scheme process is the creditors' meeting on 19 July and, if approved at that meeting, the court sanction hearing on 30 July."

Provident said the confirmation from the FCA that it is not going to appear in court to oppose the sanction of the scheme was the right decision for CCD's customers. 

“Without the scheme, CCD customers are highly likely to receive no redress payments, as it is highly likely that the CCD subsidiaries would commence insolvency proceedings and would therefore not be in a position to make any compensation payments to customers.”

The scheme requires more than 50 per cent of creditors to vote in favour, with the total value of their claims to represent at least 75 per cent of the value of all claims. 

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 July 30, 2021, where the court will either approve the scheme or not.  

If the scheme is approved by a vote and the court, the scheme is expected to become fully effective in August this year and customers with valid claims are expected to receive compensation by late 2022. 

If it is to be rejected, Provident intends to withdraw financial support for the CCD subsidiaries and would then be expected to commence insolvency proceedings, in which case customers would receive no compensation.

sonia.rach@ft.com

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