It charges an equivalent annual interest rate of 400 per cent for a £200 loan, pays its executives salaries that some of its own shareholders think are excessive, and has been found by watchdogs to have made millions of pounds in excess profits: welcome to the world of Provident Financial – for many people the only method of obtaining credit now that banks have stopped lending to millions of Britons.
Provident, which has nearly two-thirds of the so-called "door-to-door lending" market, has signalled that it will beat the City's profits forecasts this year. A report on borrowing in Britain, by the accountancy firm PricewaterhouseCoopers, suggest the sector is poised for a boom because banks have sharply cut back on consumer lending.
Provident has been phenomenally successful: this year it is expected to make well over £140m, compared with £130m last year. It has more than 2.3 million customers and will issue 9 per cent more loans than it did in 2010, after thousands of hard-pressed families rushed to it for help over Christmas. But the rise of Provident Financial and loan companies like it has alarmed groups campaigning for people on low incomes, who will be among the main victims of the public spending cuts.
They fear that a multimillion-pound fund providing hard-up families with free debt advice, low-cost loans and access to bank accounts is likely to be scrapped this year. That will take one of the main competitors out of the market, forcing even more people into the embrace of Provident Financial.
The National Housing Federation (NHF), which represents housing associations in England, said ministers had given no assurances that initiatives such as the Financial Inclusion Fund, the Growth Fund and Saving Gateway, will continue beyond the end of March. Combined with the banks' reluctance to lend to anyone not classified as a "prime" credit risk, it leaves many poorer people with few options other than Provident, with its huge interest rates, or even less palatable choices such as loan sharks.
Cameron Watt, a spokesman for the NHF, said: "There has been a massive explosion in extremely high cost credit for low-income consumers. You have pawnshops, money shops, sub-prime credit cards, door-to-door lenders. We wouldn't call for an organisation like Provident to be put out of business. They provide a service to low-income consumers. The problem is these groups are not price sensitive, so they can get away with charging what most people consider to be pretty obscene rates."
The NHF wants low-income families to have "realistic alternatives" to the money shops and doorstep lenders like Provident. My Home Finance, a social enterprise set up with state funding, charges an annual interest rate of 29.9 per cent on a £300 loan – a fraction of that imposed by a doorstep lender, which would charge about 270 per cent.
Compass, a left-of-centre think-tank, is running an End Legal Loan-Sharking campaign. Its general-secretary, Gavin Hayes, called yesterday for more funding for social institutions and a cap on the interest rates lenders like Provident can charge. The Department of Business has been consulting about such a move.
Mr Hayes said: "The key problem with Provident is that they have a near monopoly on door-to-door lending and they are completely and utterly embedded in Britain's most deprived communities where they are charging huge interest rates, as much as 800 times the Bank of England base rate.
"For someone on a really low income or on benefits, that sort of interest – even on a small loan for a short period of time – is going to suck money out of their budgets. If you look at the Competition Commission's report, door-to-door lenders are making £16,000 in excessive profits every hour of every day.
"Given that Provident is the dominant lender and given that they have this near monopoly, they are clearly making huge, excessive profits. That is why Compass and the End Legal Loan- Sharking Campaign are calling for an interest rate cap to eliminate excessive profits. We are not calling for these people to be put out of business. We simply want to see a sensible, fair lending rate cap."
In 2009, the children's charity Barnardo's published a highly critical report about the impact on families of being forced into the arms of door-to-door lenders. Its assistant director of policy, Neera Sharma, said last night: "Provident's profits are rising, making more and more money from the most hard up. Needy parents should not be forced into this downward spiral of debt, which can leave them feeling hopeless.
"High street banks hold the key to a much better, fairer, more secure future for so many people. Poor families need loans to get over unexpected events, perhaps when a washing machine breaks. If high street banks won't help, decent but cash-strapped families are plunged into the world of Provident's sky-high interest rates.
"We urge the Government's financial exclusion task force to consider how the poorest households can access affordable credit as part of mainstream banking."
While remedies designed to improve competition in the industry were put in place by the Competition Commission – including the creation of a website designed to allow home credit customers to compare prices – campaigners say this is not working as effectively as it should.
Most home credit customers deal with agents who are known to them and tend not to shop around. Regulators have again begun to investigate the sector, however. The Office of Fair Trading has sent 50 warning letters to doorstep lenders, ordering them to sharpen up their practices or face the possibility of fines, or even closure. However, it is understood that the inquiry is focused on smaller operators. Provident Financial said it had not received one of the warning letters and a spokesman also defended its practices, saying: "The price of any lending needs to be quoted as an annual percentage rate by law. However, mainstream opinion, including the Government, Citizens' Advice and the Competition Commission, agrees that the formula used to calculate APR distorts the picture for small-sum, short-term credit and is therefore a poor measure of cost.
"Provident Financial's charges are very fair. Take the example of a £100 loan to be repaid over 52 weeks. This is repaid at £3.50 per week, giving a total to be repaid of £182. For an all-inclusive £82 charge – which is guaranteed never to rise – the customer can borrow a small sum which suits her budget. She will have her repayments collected from her home each week, and she knows that there will be no default charges or extra interest added if she misses repayments."
The company said it disagreed with the idea of rate caps, explaining: "Those in favour of interest rate caps argue that they would help control the price of credit, protecting borrowers from high interest rates. The problem is that rate caps do not reduce the need for credit and, in the end, are most harmful to those they are designed to protect; people on lower incomes who present poor credit risks."
A spokesman added: "We take our responsibility to our customers extremely seriously and pride ourselves on responsible lending to meet customers' needs. We provide small loans with manageable repayments, excellent customer service, and complete transparency in our terms and conditions."
Crook by name, 'credit professional' by nature
The background of Provident Financial's chief executive Peter Crook, 46, will surprise no one: he made his name in banking before joining Britain's biggest "door-to-door" lender. The burly father of two trained as an accountant after studying economics. He joined the Halifax, where he rose through the ranks before moving to Barclays and spent seven years at what has become Britain's most controversial bank.
The reason Barclays is controversial has followed him to Bradford-based Provident Financial: excessive pay. Provident's most recent annual report shows Mr Crook earned a basic salary of £587,000 in 2009. But a study by Pirc, which advises some of Britain's biggest pension funds on how to vote at company AGMs, suggest that after adding up all his bonus schemes, his remuneration could equate to £3m – a sum enjoyed by only the leading investment bankers at his old employer. In fact, Provident is in the top 25 per cent of payers for companies of its size. Pirc says: "[This] overall level of remuneration is potentially excessive in our view."
Provident offers familiar arguments about its executive pay: it says it consults shareholders and that its rewards reflect the calibre of its staff. But Pirc argues that the measures used to tot up Mr Crook's bonuses mean that they "reward directors multiple times for the same performance". And it says targets are "not considered to be sufficiently challenging in light of the awards available".
Mr Crook appears prominently in corporate videos on Provident's website. Described as a "hardcore credit professional" by analysts, he was brought in to turn the business around – and has largely succeeded.
Case study: 'I paid £504 on a £300 loan'
Andrea Brown, 24, took out a £300 loan with Provident Financial at an interest rate of 183.2 per cent APR two years ago to meet a rent payment.
'My then-boyfriend and me had got into difficulties. Provident was the only company which would give me a loan. They took my details online and an agent came round the next day saying I could take a cash loan on the spot, once I'd signed the relevant papers.
'I was supposed to be paying back £9 per week for 55 weeks. The agent was supposed to come back weekly to collect the money from me but her appearances became sporadic. She sometimes turned up on my doorstep in flip-flops and shorts, saying she'd come from a barbecue. I was on benefits and money was tight. It was difficult to keep track of the repayment money but I managed to, just about. When I raised it with her, she came into my house and started shouting. It was quite intimidating: I was a 22-year-old girl living away from home for the first time. Months went by without anyone coming to collect my payments and I had to call up. They just kept telling me to speak to my agent – the one who had shouted at me. They were very unprofessional.
'I tried to make payments over the phone but they would not accept them. In the end, I demanded a manager come round to collect the money. I had saved up around £200, which I gave them just to get rid of the whole thing. In all, I paid £504 on a £300 loan.'
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