By Sinead Cruise
LONDON (Reuters) – Provident Financial Group is planning to revamp how it measures the performance of its doorstep lending staff, with a view to resuming controversial bonus payments linked to loans issued to subprime borrowers.
The plan, outlined in a staff memo seen by Reuters, follows the blocking of such bonuses by the Financial Conduct Authority (FCA) in 2017, after a botched overhaul of the firm’s consumer credit business model and a series of regulatory missteps.
Provident’s new “enhanced performance management” system will enable the re-introduction of “specific individual targets” for staff responsible for unsecured lending to families and individuals largely shunned by mainstream banks.
The new scheme, which secured FCA approval in March, is likely to spark concerns among some debt campaigners and lawmakers who have flagged potential moral hazards in the payment of incentives connected to the volumes of debt lent.
The company is road-testing the incentives in its north-western England sales region with the aim of rolling out the changes nationwide by August, according to the memo, which was circulated last month and signed by Chris Gillespie, managing director of the firm’s consumer credit division.
Provident’s ‘customer experience managers’ (CEMs) will be set goals based on “activity, quality and outcomes”.
A spokesman for Provident said the FCA had engaged with the firm throughout the design of the new scheme, which would introduce an element of variable pay into CEM remuneration if the trial was deemed successful.
The FCA did not respond to a request for comment.
Provident has been in the business of lending to borrowers who struggle to secure credit from other providers for almost 140 years.
But the company has faced criticism historically for poor treatment of some vulnerable customers, who typically borrow between 100 and 2,000 pounds for household or personal expenditure, repayable in small instalments to a loan collector who visits their home weekly.
Provident has been working to raise standards since early 2017, when it opted to give repayment collectors full employed status, bringing them more tightly under the supervision of management of the firm’s consumer credit division.
This new structure achieved full authorisation from the FCA in November, after more than a year of teething troubles including hundreds of staff defections, the exit of its CEO and a sharp drop in loan collections.
Progress in improving the customer experience has been mixed, however, with 36,584 complaints from its Consumer Credit Division customers received in 2018, up from 33,254 in 2017, according to the company’s website.
Customer satisfaction levels for this division, which also manages the online Satsuma Loans brand, increased to 87% from 85% over the same time period.
“There is nothing wrong with incentives for loan business generation but in an industry dealing with our most financially challenged citizens, I would recommend these incentives be payable on successful performance of the loans generated,” said Roger Gewolb, founder of the Campaign for Fair Finance.
The memo suggested new targets would discourage irresponsible lending and remove incentives to refinance problem loans or accept smaller repayments from struggling customers, which keeps them in debt for longer.
“It’s important to mention that the targets you’ll see aren’t simply the ‘Sales, Collections and Ons’ numbers some of you may have seen in the past,” Gillespie said, pointing to a focus on the “balance of commercial performance”, “individual behaviours” and “good customer outcomes.”
“Our objective is to encourage all field colleagues to make the most of every opportunity to deliver sustainable growth. That is right for customers and right for us,” he said.
In the same month it lifted Provident’s bonus ban, the FCA also warned it would be stepping up vigilance of alternative credit providers to better protect consumers at risk of paying excessively high interest charges.
The regulator cited concerns about insufficient affordability checks and the offer of frequent refinancings to consumers who may not be able to keep up with repayments.
Earlier this month Provident thwarted a hostile takeover attempt by rival subprime lender Non-Standard Finance.
NSF, led by former Provident executive John van Kuffeler, failed to convince investors he could reverse Provident’s dwindling revenues and share price faster than its current management.
(Editing by Elaine Hardcastle)