Provident Financial shares plummet 20% as payday lender issues profit warning

More consumers are using payment plans to help ease the burden of problem debt, damaging the bottom line for high-cost credit providers

Ben Chapman
Tuesday 15 January 2019 11:19 GMT
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Shares in Provident Financial crashed 20 per cent on Tuesday morning after the doorstep lender warned earnings would be at the low end of expectations.

Provident has lost more than 70 per cent of its value over the past two years after a string of problems including a £169m compensation bill and a £2m fine for mis-selling financial products which put customers further into debt.

The company, which specialises in lending to customers who find it difficult to borrow elsewhere, sells high-interest Vanquis credit cards, payday loans and car finance through its Moneybarn brand.

Last week the chair of the Business Select Committee accused Provident of dragging the payday lending industry to a new low by sending an advert for high-cost credit sent to financially vulnerable people before Christmas.

Rachel Reeves called on the City watchdog to investigate the payday lender's “cynical” festive mailshot offering loans at 535.3 per cent APR.

The advert featured a child wearing a Christmas cracker hat, children decorating their grandfather with tinsel, and people hugging with the words: “It wouldn't be Christmas without ... the look on her face ... decorating grandad ... and visiting loved ones.”

Provident announced on Tuesday that its 2018 earnings would be at the lower end of the range of £151m to £166m predicted by analysts. Shares in the company dropped as much as 20 per cent before recovering to trade down 18.5 per cent by mid morning.

Following pressure on lenders from the Financial Conduct Authority, more customers are using payment arrangements which ease the burden of debt repayments but cut into profits for providers of high-cost credit.

Further difficulties could be to come for Provident when the FCA completes its probe into Moneybarn.

Russ Mould, investment director at AJ Bell, said now should be a good time for doorstep lenders as more people are unable to borrow from mainstream operators, but Provident's warning suggests otherwise.

“Its consumer credit division, whose disastrous restructuring helped wipe £1.7bn off its market value in a single day in August 2017, also has ongoing issues,” he said.

“The reaction to this trading update shows how little credit in the bank the company itself has with shareholders, left bruised by the precipitous collapse in the stock which saw it exit the FTSE 100.”

The high-cost credit sector has come under increasing pressure from regulators and MPs who have accused some lenders of preying on vulnerable consumers.

Wonga collapsed in August after it struggled to adapt to a cap imposed by the FCA on payday loan repayments.

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