Provident Financial faces second FCA investigation

The Financial Conduct Authority has begun to probe the processes the business applies to check customer affordability before its provides vehicle finance and the treatment of customers in financial difficulties.

Provident, which is already facing a potential fine from the FCA over the repayment option plan (ROP) sold by its Vanquis Bank arm and is still trying to get back on an even keel after an awkward restructuring of its doorstep lending business, bought Moneybarn in 2014 as the largest provider of vehicle finance in the UK for non-standard customers.

In June last year Moneybarn was given authorisation by the FCA to conduct consumer credit activities and Provident noted that, "since that date the FCA has continued to discuss certain processes with Moneybarn and Moneybarn has made a number of process improvements, including to the way it deals with future loan terminations".

Provident, which is hunting for a leadership team after executive chairwoman Manjit Wolstenholme died last month, said it will work with the FCA to investigate the remaining concerns and "resolve any outstanding related issues as soon as practicable".

This summer the FCA began conducting a probe into the motor finance market, where there have been suggestions a bubble is forming or already has formed around personal contract purchase (PCP) plans.

Moneybarn, according to the company's website, considers each customer's personal history in order to provide finance to customers that have previously been refused credit from mainstream lenders.

At the end of September, Provident had cash resources of £194m, excluding the liquid asset buffer held by Vanquis Bank, while the headroom on the firm’s committed debt facilities was around £70m.

"For some companies, it never just rains but pours and this seems to be the case for Provident at present," said analyst Gary Greenwood at broker Shore Capital, meaning all three of the company’s main operating divisions are now under the spotlight for one reason or another.

"In this instance, the investigation relates to the companies underwriting practices and, in particular, how it assesses affordability. At this stage it is not clear whether there has been any wrongdoing, but for the FCA to be investigating then there must be at least some cause for concern.

All the combined factors at the company "mean that there is now simply too much uncertainty to justify us maintaining a positive stance on the shares", Greenwood said.

Neil Wilson at ETX Capital noted that Moneybarn is by no means a large part of Provident’s overall business with only around 50,000 customers out of the group’s 2m-plus.

"But it adds to the woes for the embattled lender and is another headache for management at the worst time," he said, pointing out that the some estimates suggest Vanquis will face a £300m bill to clear up the mess.

He added: "Ultimately, with a healthy cash pile, new management and a turnaround strategy in place, Provident can weather regulatory storms such as these. The real question is whether it can get its core doorstep lending business back in shape. On that front the outlook is very uncertain."