Sub-prime Provident revels in the recession

By This Is Money
Updated: 10:25 EDT, 28 July 2009

Controversial lender Provident Financial has unveiled as jump in profits as struggling borrowers seek out its services.

Doorstep winner: The sub-prime lender is proving popular.

The lender, which also sells loans door-to-door, reported half-year profits of £53.1m, up 3.5% on the same figure last year. Provident specialises in offering loans to so-called sub-prime borrowers with non-standard credit histories. The bulk of profits came from the groups home credit arm.

A surge in the number of borrowers on its books – now more than 2m – highlights the problems many borrowers are having in accessing funds from High St banks.

News of its profits haul came as children's charity Barnardo's slammed the lender for plunging poor families into 'worrying levels of debt' and called for an inquiry into industry practices.

Barnardo's claimed Provident was charging interest rates up to 545% annual percentage rate.

Barnardo's claimed many high-interest lenders 'prey on the poor' in its latest report, Counting On Credit, which comes after a year-long study into child poverty.

The charity hit out at Provident's figures today, saying 'its extortionate interest rates are typical of many doorstep lenders which will continue to flourish unless the Government steps in'.

The charity's chief executive, Martin Narey, said: 'Many parents turn to high-interest money lenders in desperation.

'Barnardo's has studied poor families across the UK and listened to the same story over and over. Parents can't afford the basic necessities for their children, so are forced to borrow.

'Banks don't want their custom; they are turned away and excluded from access to everyday overdrafts and loans with reasonable interest rates, so they are left with no choice but to take what they can get.'

Barnardo's wants urgent new regulations to protect consumers and for banks to make it easier for individuals on low incomes and in deprived areas to get access to loans.

But Provident Financial argued that all of its service charges and loan fees were included in its APR, making the comparison unreliable.

A spokeswoman for Provident said: 'APR is widely known to be a poor measure of short-term, small sum credit and is not well suited to describing Provident's loans.

'Unlike many other lenders, all of Provident Financial's charges are included in its APR.

'That includes the interest charge on the money lent, the charge for the weekly collections at the customer's home and the cost of providing an absolute guarantee that customers will not face any extra charges - even if they miss repayments and are late in repaying their loan.'

Meanwhile, buy-to-let lender Paragon today said record low interest rates and a lack of competition were helping the group weather the downturn in the housing market.

Impairment losses between April and June were lower than in the first half, while its share of loans more than three months in arrears edged lower to 1.71%.

Paragon added that it had been helped by a lower number of borrowers moving elsewhere due to a lack of buy-to-let deals from other lenders.

'Whilst there have been some recent signs of improvement in the funding markets, we do not expect a significant reopening in the near future, hence we expect competition to remain subdued and mortgage redemption rates to remain low,' the group said.

With rates likely to stay at 0.5% until the end of 2009 at least, Paragon also anticipates a 'positive impact on borrower payment performance'.

Pre-tax profits for the nine months to June 30 were £31.4m, around 20% lower than the same period last year when exact comparisons were not given.