Provident Financial profits rise as Barnardo’s attacks its high interest rates

Published: 1:14PM BST 28 Jul 2009

Provident Financial

“More than 95pc of our customers are satisfied with us,” said Peter
Crook, the chief executive of Provident
Financial, reporting a 5pc rise in customers to 2.1m that helped
push profits up 3.5pc to £53.1m pre-tax.

But with interest rates of 189pc on one-year loans of around £400 and up to
500pc on some products, Barnardo’s, the children’s charity, claims in a new,
year-long study into child poverty that Provident and other loan companies
are plunging poor families into “worrying levels of debt“.

“If some of us are worried by interest payments of less than 10pc, imagine the
horror of paying back loans with interest payments of more than 500pc,”
said Martin Narey, Barnardo’s chief executive. “Plunging the poor into such
debt is as immoral as it is unnecessary.”

In the report, Counting on Credit, the charity claims the high interest rates
will continue to flourish unless the Government steps in and called on the
Office of Fair Trading to investigate. The OFT is already looking at the
entire £35bn-a-year consumer credit market, of which the £3bn door-to-door
lending market is a small part.

Barnardo’s said parents who cannot afford the basic necessities for their
children are forced to borrow. However, because banks don’t want their
custom, they are excluded from overdrafts and loans with reasonable interest
rates, and have “no choice but to take what they can get”.

Mr Crook said Provident Financial offered a service to such people. It
believed the OFT would show the company to be a “fair and transparent
lender, with a business model proven to support low income households
through the economic cycle”.

“Customers know that if they come to us the amount they pay won’t go up,”
he said, adding that its customers get a better deal than from many of the
500 or so companies that make loans to people with poor credit histories.

With around 1.8m customers - or one in 20 households - Mr Crook believes
Provident Financial is “more in touch with what borrowers want”.

Provident Financial expects the economic environment to remain difficult in
the next half but expects to deliver “continuing quality growth for the
full year”. An unchanged interim dividend of 25.4p will be paid on
November 30.

Shares in Provident Financial, which had risen around 9pc ahead of the
results, fell 6pc to 801p by midday. Ben Archer of Charles Stanley has a
price target of 900p on the stock. He says the 7.6pc yield is likely to be
the main attraction in the short term.