Provident Financial plc is the leading non-standard meaning "sub-prime" lender in the UK. They currently have 3,712 employees and serve 2.5 million customers in the UK and Ireland.
Provident grew rapidly in the years after the financial crisis, stepping in to offer credit to people who could not secure it from banks, as they became more wary of risky lending.
The problem started when earlier this year it announced changes to its traditional business model of sending self-employed sales agents door to door, offering loans and collecting debts.
In a move to embrace automation, its chief executive, Peter Crook unveiled plans to do away with its 4,500 sales agents, replacing them with 2,500 full-time “customer experience managers”, who would be connected to head office via iPads, their time managed more efficiently thanks to analytical software.
As soon as the firm told the existing collection agents that they were being fired, they walked out rather than stay through the transition. Hence the plunging rates of debt collection, which the new staffs have not been able to get back up.
Within a year, its loan repayment rates have fallen from 90 % to 57 %, leading to downgraded forecasts for its consumer credit division to a profit of £60m two months ago, now expects the business to suffer losses of up to £120m in the current financial year.
Provident entire business model is evidence of a serious and potentially systemic financial problem.
The alarm here is particularly focused on the sub-prime car-finance industry, in which Provident (via Moneybarn) is the biggest player.
There’s a particular echo of the sub-prime crisis in the increasing popularity of personal contract plans (PCPs) – clever financial innovations which offer very poor people access to very nice cars, because they are effectively leasing them rather than owning them.
Moneybarn doesn’t focus on PCPs: it’s more about old-fashioned lending. But that lending is going to people who are often heavily indebted already.
A typical Moneybarn customer spends 66 per cent of after-tax income on rent, car loan and credit card payments. These, in other words, are people who are already drowning in debt – and the slightest rise in interest rates, or economic slowdown, or spike in inflation, could see them go under completely.
Moneybarn customers are most likely the canary in the Provident Financial mine.
To be continued...
Provident Financial share price.
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Source: theguardian.com/uk, telegraph.co.uk, bbc.co.uk/news/business, providentfinancial.com
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