* Provident says mortgage business is under investigation
* Company establishes Â£ 50million complaint resolution plan
* Stocks dip 25% (add company info, update stock movement)
March 15 (Reuters) – Provident Financial on Monday presented a Â£ 50million ($ 69.7million) plan to address an increase in complaints and claims against its home loan business during the COVID-19 crisis, warning that the unit could collapse if not approved.
Shares had fallen 29% to 1.86 pounds by 08:30 GMT on Monday and were forecast for their biggest single-day drop in nearly four years.
Provident, which lends to people who do not meet traditional bank lending criteria, said Britain’s Financial Conduct Authority has been investigating conduct issues with its consumer credit division (CCD) over the past year.
The update is a major setback for the company, which was plunged into crisis in 2017 when it undertook a botched overhaul of its mortgage business by replacing its army of independent home debt collectors with direct employees.
Provident has since worked to repair its mark and, in 2019, rejected a hostile offer from a smaller rival Non-Standard Finance.
His hopes of making CCD profitable again have been undermined by the COVID-19 crisis, which has hammered credit volumes and pushed up costs.
FCA is examining CCD’s lending criteria and how it has applied the financial ombudsman’s decision to its complaints process over the past year, Provident said, adding that it was unlikely that the survey ends before 2022.
Provident’s Moneybarn unit was fined last year by the FCA for unfair treatment of customers following a separate investigation, while another investigation into its Vanquis Bank credit card business led to the payment of tens of millions of pounds in compensation.
The company said if the settlement program was not implemented, it was likely that the CCD would go into receivership or go into liquidation.
âCCD was on track to break even on a monthly basis in 2020, ahead of COVID-19,â the company said.
Complaints to the FOS in the mortgage market tripled in the second half of 2020 compared to the first, which increased Provident payments to clients tenfold to Â£ 25million.
“Given PFG’s history, regulatory investigations shouldn’t come as a major surprise,” said analysts at KBW, who have a “market performance” rating for the stock.
“(We) would not expect operational repercussions for Vanquis and Moneybarn as a result, but (it) could have an impact on relationships with customers, regulators and suppliers.”
$ 1 = 0.7177 pounds Report by Muvija M and Chris Thomas in Bangalore; Editing by Ramakrishnan M. and Jan Harvey