The City watchdog has hit out at Provident Financial over plans to cap compensation for customers of its failed doorstep lending arm, but said it would not oppose the lender in court.
Provident has set aside £50m under a so-called scheme of arrangement to reimburse customers who were mis-sold loans by its home credit unit.
In a letter today the Financial Conduct Authority said it did not support the scheme, saying that consumers were being offered significantly less than they were owed.
“The FCA has significant concerns about schemes of arrangement being used to circumvent paying customers their full redress entitlement in the way proposed by the scheme,” the watchdog wrote.
“The group has stated clearly that it does not intend to increase its contribution or share profits with the redress creditors, such that the redress creditors are left with a ‘take it or leave it’ choice between a very low recovery under the scheme or a lower recovery (if any) in an insolvency.”
The FCA said it expected Provident to bring its letter to the court’s attention when it appears at a sanction hearing later this month that will determine whether or not the scheme is approved.
Despite its complaints, the regulator said it did not plan to formally oppose the scheme in court as the alternative was insolvency, which would leave customers with no compensation.
“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,” said Provident chief executive Malcolm Le May.
“We continue to believe that the scheme is fair and in the best interests of CCD [consumer credit division] customers.”
The scheme will be put to a vote at a creditors’ meeting on 19 July. It requires more than 50 per cent of creditors by number to approve the scheme and the total value of their claims to represent at least 75 per cent of the overall value of claims.
If approved by creditors, the scheme will be considered by the High Court at a sanction hearing on 30 July.
Provident has announced that it will shutter its troubled doorstep lending arm, withdrawing from the market after 141 years.
It comes after rival sub-prime lender Amigo was thrown into crisis in May when a High Court judge refused to approve a compensation scheme that capped payouts for historical complaints.
Amigo has since warned it is at risk of insolvency.