(Reuters) - Provident Financial (LON:PFG) on Monday outlined a 50 million pound plan to settle a surge in customer complaints and claims against its home credit business last year, warning the unit could collapse if the scheme is not approved.
The company, which lends to people who do not meet the lending criteria of mainstream banks, said Britain's Financial Conduct Authority (FCA) was also investigating certain conduct issues of its Consumer Credit Division (CCD) over the past year.
Shares of the company plunged 15% to 221 pence by 0808 GMT.
Provident's plan to make the division profitable again after an unsuccessful restructuring in 2017 was derailed by the COVID-19 crisis, which hammered lending volumes and drove up costs.
The FCA was looking into CCD's consideration of affordability and sustainability of lending and how it applies the Financial Ombudsman Service's (FOS) decision on its complaint handling process over the past year, Provident said, adding that the probe was unlikely to end until 2022.
"CCD was on track to breakeven on a monthly basis during 2020, prior to COVID-19, and prior to customer complaint volumes from Claims Management Companies being driven significantly higher across the high-cost credit market during H2 2020," the company said.
Provident said if its complaint settlement scheme was approved by the FCA, it would fund legitimate claims with 50 million pounds.
The number of complaints to the FOS across the home credit market surged by 200% in the second half of 2020 compared to the first, while payments to customers at Provident jumped ten times to 25 million pounds in the period.