Provident Financial made the following statement to Panorama:
Provident Financial has been making small home credit loans to customers for over 130 years. The average loan is for £400. It is properly regulated and adheres strictly to the OFT’s guidelines on responsible lending.
Provident takes great care to ensure that it only lends amounts appropriate to the personal circumstances of each customer. Provident has strict policies in place to prevent loans being advanced to anyone it believes does not have the mental capacity to understand the terms of the loan they are taking out, whilst at the same time ensuring that it does not discriminate against anyone, including those with mental illness but no loss of mental capacity.
The size of loan granted is always designed to match the circumstances of each individual customer. Provident is a responsible lender and currently 80% of our loan applications are turned down.
In independent research, over 90% of our customers say they are satisfied with the home credit service they receive. However, with 1.8 million customers we recognise that we will not always get it right and, if we make a mistake, we work hard to put matters right and will not hesitate to take any necessary action.
Panorama made a number of allegations in its programme. Provident’s responses to these allegations are set out below:
Lending to people with mental capacity limitations
Provident would never deliberately lend to someone who it believed did not have the mental capacity to understand the credit agreement they were signing up to. However, we do not discriminate against those who may have some form of mental illness yet who do have the mental capacity to understand their credit agreement. We follow the OFT’s guidelines in this respect by not discriminating against those with mental illness while not entering credit agreements with those we believe lack the mental capacity to understand the terms of their agreement.
If we make a mistake and lend to someone who we subsequently believe does not have the mental capacity to understand the credit agreement they have entered into then we will write off the loan.
We lend to people who are on benefits.
Two-thirds of UK adults (30 million of the 45million adults in the UK) are in receipt of some form of social security benefit. Provident does not discriminate against those in receipt of social security benefits. Rather, Provident makes loans of an appropriate size to match customers’ individual circumstances. In fact, a minority of Provident’s customers are on benefits.
Provident appears to be failing to adhere adequately to or take account of OFT guidelines on responsible lending.
Provident adheres strictly to the OFT’s guidelines on responsible lending. As indicated in paragraph 4.1 of the OFT’s Irresponsible Lending Guidelines, the OFT states the extent and scope of any assessment of affordability, in any particular circumstance, should be dependent upon – and proportionate to – a number of factors which could include:
the type of credit product
the amount of credit to be provided and the associated cost and risk to the borrower
the borrower's financial situation at the time the credit is sought
the borrower's credit history including any indications of the borrower experiencing, or having experienced, financial difficulty
The OFT has indicated that a creditor may have an existing financial relationship with the borrower that could help to inform this aspect of the assessment. For example, it may have a long-standing financial relationship with the borrower that has been satisfactorily discharged on both sides.
Provident adopts a proportionate approach to assessing the level of financial commitment a customer can afford. Agents, who remain the final arbiters of any lending decisions, undertake an appropriate affordability assessment taking into consideration the type of credit product sought, the amount of credit sought, the duration of the loan, any previous dealings with the customer and the risk to the borrower in increasing their financial commitments.
Before discussing credit products, agents undertake a review of the customer’s financial circumstances. The agent completes an affordability assessment with the customer, capturing information such as the customer’s employment history, living arrangements, dependants, income, outgoings, regular expenditure and other credit commitments.
Agents use this to create a holistic view of customers’ financial circumstances. When combined with agents’ and other Provident personnel’s knowledge of customers’ circumstances, this creates a good method of assessing customers’ capacity to afford a credit product and maintain repayments for the duration of the loan. By attending the customer in their home, the agent is better placed to assess the customer’s situation along with the accuracy of the information provided by them.
Provident will make further loans to ‘good payers’, thereby keeping them indebted to the company.
Just like any other company, Provident wishes to re-serve its satisfied customers. Provident only ever issues credit to those who want and can afford it.
Even when a customer does not want or need further credit, agents will “put the seed there” by telling the customer that they are being offered more money by the company.
Just like any other company, Provident wishes to re-serve its satisfied customers. As a customer’s loan is drawing to its conclusion, agents will tell good customers that they are free to take out another loan with the company if they wish. In the end, it is always the customer’s decision, based on what they can afford.
Provident’s head office sends customers letters directly offering them money. Often for more than they had previously borrowed.
Just like any other company, Provident wishes to re-serve its satisfied customers. Sometimes the amount offered will be larger than the customer’s previous loan because Provident judges (on the basis of statistical analysis of years of experience with millions of customers’ weekly payment histories) that the customer will be able to manage the repayments on a larger loan if such a loan is what the customer wants. It should be remembered that, as part of its commitment to responsible lending, Provident will lend a new customer smaller amounts. Only when a customer has demonstrated they are able to manage the repayments and following a further affordability assessment, will a larger loan be considered. Therefore it is entirely logical that a customer with a good repayment history may be offered a larger loan.
Provident agents lend a much smaller proportion of the amount of credit than our central systems suggest would be affordable. The agent control works very well in managing the amount of credit available to customers based on individual, personal and in-home assessment of their situation which is always able to over-ride recommendations from the central system. Provident does not grant home credit centrally: an agent always makes the decision.
Managers have targets related to how much money they have on their book and the number of sales made, which can also lead to irresponsible lending. Managers are under pressure to meet these targets.
Like most businesses, Provident managers are set targets across the full range of their professional responsibilities. However, because it is never in the interests of agents to lend to customers irresponsibly because they are paid predominantly on what they collect, not what they lend, this acts to prevent irresponsible lending.