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Provident's Vanquis ordered to pay £171m in fines and compensation
Provident Financial's Vanquis Bank has been ordered by the financial regulator to pay a £2m fine and almost £170m in compensation to customers over misselling of 'repayment option plan' product.
The announcement from the Financial Conduct Authority, timed for the same day as the FTSE 250 company's annual results, has forced Provident to go cap-in-hand to investors for roughly £331m in cash to cover the bill, which was less than investors had been led to believe by newspaper reports over the weekend.
When selling the ROP, Vanquis did not tell customers the full cost of the product could attract a high rate of interest if the balance was not paid on their credit card at the end of the month, the FCA said.
The FCA fined Vanquis £1.976m and ordered the FTSE 250 company to pay back the £169m of interest customers were charged on ROP from 1 April 2014 to when customers were informed of the full cost of the product.
Mark Steward, director of enforcement and market oversight at the FCA, said: "Vanquis failed to make sure customers were informed about the full cost of the ROP when it was offered to customers. Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing.
"Customers are entitled to be told all relevant information when being offered financial products. These were very serious breaches."
The FCA has reviewed the calls made by Vanquis sales agents and in every case found they did not explain the full cost of the product to customers.
Sales agents explained that the principal cost of the ROP was a monthly charge of either £1.29 or £1.19 per £100 of a customer's outstanding balance, but did not explain to customers that it could attract interest at the card rate, which was compounded unless the account balance was paid in full at the end of the month. The APR on the card could vary from 19.9% to 79.9%.
RIGHTS ISSUE AND RESULTS
Also on Tuesday morning, Provident, which is also being investigated by the FCA over its Moneybarn car loans business, announced a fully underwritten rights issue to raise a gross £331m and in its 2017 accounts took a provision of £172.1m in connection with the FCA settlement. The 17 for 24 cash call will see 105m new ordinary shares issued at an issue price of 315p apiece, representing a discount of 46.4% to Monday's 588p closing price.
Provident reported a swing to a statutory loss before tax of £123.0m from the £343.9m profit a year earlier, with a basic loss per share of 90.7p versus EPS of 181.8p last time. Vanquis generated a profit of £206.6m, the doorstep lending business reported losses in line with the management guidance of £118.8m and Moneybarn reported a profit of £34m.
Provident said it was "continuing to cooperate with the FCA" over Moneybarn and its ongoing investigation into affordability, forbearance and termination options, for which it has recognised an estimated cost of £20m as an exceptional cost in its income statement.
Shares in Provident had the day before had fallen to their lowest levels since the mid 1990s on the back of a weekend newspaper report that suggested the doorstep lender has been sounding out investors for a "bumper" capital raise. Provident had been sounding out investors for a capital raise of up to £500m to cover the cost of fines and to shore up its balance sheet, the Sunday Telegraph reported.
Provident also announced that it will return to paying dividends this year and that the Home Credit business will return to profit in 2019 and the operating performance of that division continues to improve.
Shares in the company surged 40% to 824.6p on Tuesday morning.
Broker Numis noted that profit from Vanquis was better than expected and the home credit business in line with expectations, though credit quality at Vanquis weakened a little "but remains extremely good with impairment to average loans of 12.6%".
"With the ROP issue behind Provident we hope the market will focus on the strength of the business units and their fundamental value," Numis said. "Provident has category killer businesses that, on a look-through basis, are worth circa £3bn. The market value including the £330m right proceeds is about £1.2bn."