Sub-prime lender closes after surge in compensation claims

Provident Financial, which has been lending money to people for 141 years has announced it is to close its doors or sell its lending business. The firm had been struggling for several years and in 2019 reported losses of £21 million, however figures recently published shows the firm made a £75 million loss in 2020.

There has been a steady decline in the payday loan industry since Wonga and Quick Quid collapsed in 2018 after complaints about lending led to a surge in customers seeking redress. Complaints were based around affordability and customers complained they sold loans that they could not afford which left them with extra interest and charges. Complaints were also made about how companies dealt with customers who were struggling to pay off high interest loans.

Many of these payday loan companies came under fire from The Financial Ombudsman Service, who saw a 250% increase in complaints from disgruntled customers. Many of these complaints were upheld by the service who seemed to favour the consumer. In March this year, Provident wrote to their customers to inform them that they would possibly go into administration because of a surge in compensation claims. They also explained how they were facing regulatory investigation by The Financial Conduct Authority about whether or not the firm carried out affordability checks before lending to people.

What is a sub-prime loan?    

A sub-prime loan is offered to people with a low or poor credit history. They may also have a low paying job or do not make enough money, so they are financially more of a liability to lenders and banks than a person with a higher credit score.

However, this does not mean they cannot borrow money. It simply means as they are more likely to struggle to make repayments, they are usually charged a much higher rate of interest than someone who is more financially stable. In some cases, a sub-prime loan can be a good thing, if an individual has previously had poor credit history, this offers them the opportunity to build their credit rating if the loans are repaid on time and to the figures set in the terms of the loan.

What is the problem with sub-prime loans?

The main issue with sub-prime loans is that they charge incredibly high interest rates. On a car loan, for instance that can represent thousands of pounds and on a mortgage, these can run into tens of thousands.

In principle, and if used correctly, a sub-prime loan can benefit a person who is looking to improve their credit score, however, a lot of lenders have been accused of offering unaffordable loans to people who were not assessed for their ability to repay them. This would be based on an assessment of their income and outgoings, something Amigo is accused of doing.

Did you take out an unaffordable sub-prime loan?

If you have already paid off your loan debt in full you can still make a claim – if you struggled to repay the money at the time.

If you are still paying off your loan, you can make a complaint if you are struggling to make repayments, if your claim is successful, it could lower the amount you have to pay back.

You can also still claim if the firm has ceased to operate, you will have to complain through the firm’s administrators. But even if your claim is unsuccessful, it could mean you paying back less money if you owe any.