Provident under pressure due to sky-high interest charges

Controversial doorstep lender Provident Financial will be challenged to justify their extortionate interest rates this week, as thousands of its borrowers who have unsecured loans through them, are paying rates ranging from 170% to 500%.

Citizens Advice debt counsellor Gerald Benson has instigated the challenge, and is he keen to see whether Provident’s doorstep lending constitutes an extortionate credit transaction under the Consumer Credit Act.

This action comes at a time when many Britons are struggling with the burden of debt, especially unsecured loans.

With the co-oporation of former bus cleaner John McCandlish, 56, one of Provident’s 1.5m borrowers, Benson will challenge Provident’s senior team, led by chief executive Robin Ashton, to defend their interest rates in court.

Mr Benson, who has taken on big institutions before, is confident a court would rule in his favour. In turn, this could pave the way for many Provident customers on low incomes, to seek some kind of financial redress.

Mr McCandlish, who is from Glasgow and lives alone, has been out of work for 17 years due to a nervous disorder and lives on just £123 a week from benefits.

The Consumer Credit Act grants the courts the power to allow financial redress to victims of extortionate lending. Although Provident themselves have never been successfully challenged in court, some lenders have experienced a court decision going against them.

One such case happened last October when Liverpool County Court wiped out a debt of £384,000 run up by Tony and Michelle Meadows of Southport, Merseyside, after their loan of just £5,740 spiralled out of control due to annual interest of 34.9% and missed payments.

Provident chief executive Robin Ashton firmly believes that his company’s lending is ‘clear, flexible, transparent and personal’. Benson begs to differ. He is of the belief that interest charges of up to 500% amounts to extortionate credit ‘in anyone’s language’.

Provident Financial is the biggest supplier of home credit, in the form of unsecured personal loans, with half of the market share. They specialise in lending small amounts of money, typically around £200 and £300. Borrowers have the choice of paying over 23,31 or 55 weeks. Around 80% choose the longest period. In some cases a loan of £200 can result in repayments totalling £294, the equivalent to an APR of 497%.

Due to the extortionate amount of interest, Benson’s letter to Ashton states that McCandlish will make no further payments. This leaves Provident the choice of either writing off the debt or going to court.

Ashton believes his company’s lending practices will stand up to court scrutiny citing that 93% of its customers have expressed their satisfaction of the service Provident provide.

30/6/05