Software bug at subprime loan provider Provident costs it dearly
About 800,000 UK families have been affected by a software bug at doorstep loan provider Provident Financial, which has stopped the company from being able to collect debts and severely restricted its ability to make new loans. Provident revealed its door-to-door loan division will lose up to £120m this year. Shares plummeted by 66% this week, wiping £1.7bn off the company's value. Provident is also being investigated over a potential mis-selling scandal. Provident targets customers with poor credit histories and most of its 2.5 million customers do not qualify for standard bank loans. CEO Peter Crook has resigned.

 

Peter Crook, CEO of Provident Financial, resigned in disgrace yesterday as the company's stocks crashed

Hundreds of thousands of struggling families have been left in limbo by a mounting crisis at doorstep lender Provident Financial.

Shares in the business crashed by 66 per cent yesterday after bosses admitted that a software bug has made it impossible to collect debts from customers.

It is believed to be the biggest ever one-day stock price fall for a firm in the blue chip FTSE 100 index, wiping £1.7billion off its value.

The company’s chief executive, Peter Crook, resigned in disgrace.

The firm was also forced to announce its door-to-door loan division would lose up to £120million this year, and it will be axing its dividend.

In a shock update to the stock market, Provident revealed it was being investigated over a potential mis-selling scandal which could ultimately cost up to £140million.

Analysts have been closely watching the 137-year-old company, which targets customers with poor credit history, because any problems with repayments are likely to be an early warning sign that Britain’s debt bubble is about to burst.

Most of its 2.5million customers are among the most vulnerable in society. Many do not qualify for standard bank loans and are categorised as ‘sub-prime’.

Bradford-based Provident’s woes began when it launched a £21.6million overhaul of its doorstep collection business – an operation with 801,000 customers who are typically charged annual interest rates of 535 per cent.

The company got rid of 4,500 freelance debt collectors and planned to hire 2,500 full-time staff to replace them.

However, a recruitment campaign initially fell flat and it was forced to warn two months ago that it had a shortage of staff.

A new computer system was also introduced to make it easier for appointments to be scheduled. But instead of improving efficiency, it has made things far worse because bugs mean meetings are arranged at the wrong time and employees are not sure when they are meant to meet clients.

In total £1.7billion was wiped off the value of the lender, which deals with some of the most vulnerable in society, marking the biggest one-day fall in a blue-chip FTSE 100 firm ever

The problem is so bad that only 57 per cent of debts are being collected on time, as opposed to the 90 per cent normally picked up.

It is also far more difficult to lend out new cash, with weekly lending £9million lower than it was this time last year.

Customers whose payments are late because of the disaster will not be charged extra interest or hit with any financial penalties.

However, many rely on regular visits from Provident staff for credit to tide them over – meaning the scheduling chaos could leave them dangerously short of cash.

Chairman Manjit Wolstenholme, who has taken over day-to-day running of the company after Mr Crook’s departure, said: ‘We’ve got people on the ground, but we have issues with the software being used by them. Agents are turning up at the wrong time when customers aren’t there.

‘It’s not behaving because the data that’s in there isn’t good enough for what we need to do. This is something we should be able to do something about.’ And in a second major bombshell, Provident also revealed that the Financial Conduct Authority is investigating possible mis-selling claims at its credit card business Vanquis Bank.

It has 1.6million customers, and in addition to letting them borrow money it offers a product called a repayment option plan.

This allows borrowers to pay a monthly fee so they can freeze their account without incurring extra interest if they run into financial difficulties.

About a third of Vanquis customers are believed to have bought the product and they typically pay almost £155 a year for it.