Provident to limit loan mis-selling payouts for up to four million customers under new redress scheme – what it means for you

The firms, which no longer give out new loans, previously provided short-term guarantor, doorstep and payday loans, charging interest as high as 1,557.7% APR in some cases, to borrowers who struggled to access standard credit. But they've been hit hard by mis-selling claims for incorrectly-issued loans, with complaints to the Financial Ombudsman Service about these four firms surging from 3,061 in 2019 to 14,010 last year.

As a result, Provident Financial proposed a 'scheme of arrangement' – a legal agreement between a company and those it may owe debts to – which was approved by the High Court on 4 August and will be implemented this month, potentially impacting up to 4.2 million customers. It will see payouts capped at a total of £50 million. Provident says the scheme is necessary to prevent the companies going bust.

Financial regulator the Financial Conduct Authority (FCA) had voiced concerns about the scheme, saying it did not support it because it would offer customers with valid claims "significantly less" than the full amount of compensation they are owed. In its ruling on the scheme, the High Court stated that it is estimated those with claims will not recover more than 6% of what they're owed.  

Yet the regulator chose not to formally challenge the scheme in court on the grounds that "the only likely alternative" to it would be the collapse of the four lenders – in which case, the FCA said, many affected customers would get even less compensation, if any. Our Reclaim Guarantor Loans and Reclaim Payday Loans guides have full help on how to check if you were mis-sold.

How the new redress scheme works

If you're a current or former Glo, Greenwood, Provident or Satsuma customer, here's what you need to know about the scheme and whether you're eligible:

• You must have taken out the loan between 6 April 2007 and 17 December 2020 to be covered by the new redress scheme. This also includes being a guarantor for someone else's loan from Glo. Loans taken out before this date were subject to different regulations, so aren't part of the scheme. If you have a complaint about a loan issued after 17 December 2020, this falls outside of the scheme and will be dealt with under Provident's normal complaints policy.

• The loan must have been mis-sold at the point of issue. If you couldn't afford the loan over its term when you took it out, whether you're the borrower or guarantor, it was likely issued incorrectly – meaning you'd have a valid claim. Your claim will be assessed looking at a number of factors, including how much you borrowed, whether you had to borrow more over the course of each year, how much of a gap there was between different loans you took out, whether you used one loan to pay off another and if you were behind on payments.

• You can submit a claim online. A dedicated online claims portal has been set up and you can now register to claim via the scheme's website. You won't need your loan details or paperwork, but you'll be asked to provide your scheme ID, which you should be able to find on top of any letters or emails you've been sent about it. If you don't have this, or need further help, you can email soa@provident.co.uk or call its hotline on 0800 056 8936.

• If you are currently paying off a loan, but think you were mis-sold, you still need to keep up with your repayments. If not, your credit file will be affected and, if it's a guarantor loan, it is likely your guarantor will be asked to step in and make your payments. But you can make a claim under the scheme and, if it's successful, some (or even all) of your outstanding balance could be written off as part of your compensation. If you're struggling with debt and not sure where to turn, see our Debt Help guide.

• You may not get the full amount you're owed as payouts will be capped. But if you're due money back AND you're still repaying your loan, the amount you owe could be completely wiped out. Generally, if you've been mis-sold a loan and make a successful claim against the lender, you can expect to get back most, if not all, of the interest and fees you were charged. Since the interest tends to make up a considerable portion of the total amount you repay, these reclaims can be sizeable, running into the hundreds or even thousands of pounds.

  But under the scheme, total payouts will be capped at £50 million, as that's the amount which has been set aside to fund it. Depending on how many of the firms' 4.2 million customers make a claim – and how many of these claims are ultimately upheld – you may only get a fraction of the full amount owed.

  However, it's worth noting that if you still owe money on your loan and your claim is successful, your balance will be reduced by the full value of your claim first. So, for example, if your claim is worth £100 and you still owe Provident £50 on an existing loan, it will first reduce your loan balance by £50 to £0 and then pay you the relevant percentage of the remaining £50 (£3 based on the 6% figure the High Court quotes above).

• There will be a six-month deadline to submit a claim. The clock will start when the scheme is officially implemented, which is expected to take place on 27 August – meaning you should have until 27 February 2022 to file a claim. 

• Payouts are unlikely to be made until mid-way through next year at the earliest. Provident will only start assessing claims after the scheme closes to new claimants in February next year, and says it will look to do this within six months. So any payments aren't likely to be made until mid-2022 at the earliest, though it could be even later depending on the number and complexity of the claims.

Here's what it means for those with existing complaints

Though we don't yet have all the details about the implementation of the scheme, this is what we know so far about what it means if you've already submitted a complaint to Glo, Greenwood, Provident or Satsuma, or to the Financial Ombudsman Service (FOS):

• Already got an agreed payout from one of the lenders or had a payout ordered by the FOS? You should get the full amount owed. This is only likely to impact those who submitted their complaint before 15 March 2021. 

• If you complained to the lender or to the FOS BEFORE 15 March 2021 but haven't received a decision, your claim will be automatically registered with the new scheme. This means you don't need to do anything else, though bear in mind you might get less now than you otherwise might have.

• If you complained to the lender or to the FOS ON OR AFTER 15 March 2021, you'll need to submit a new claim via the scheme. Provident says you'll need to do this in order for your claim to be considered, and the FOS has confirmed it "wouldn't be appropriate" for it to consider complaints further given a court-approved scheme has been put in place. The FOS added that it will write to customers to explain the next steps – but you don't need to wait for this and can submit a claim through the scheme now. 

What does Provident say?

Malcolm Le May, chief executive of Provident Financial said: "[The court's approval of the scheme] is a positive outcome for customers with valid claims under the scheme, as it provides access to a redress payment which would not have been possible had the scheme not been approved. We believed from the outset that the scheme was fair and that it offered the best outcomes for customers."