Tuesday, July 5, 2016

Want a tough job - try collecting debt door to door in the council estates of Northern England

I was reading the accounts of Provident Financial Group - a UK subprime lender. I have no position - but this appears to be an old relatively well run subprime lender with a prohibitively high price to book ratio.

Whatever - they are growing now through a credit card business where they are hawking cards on the street. And they are shrinking their foundation business which involves selling loans and collecting debt door-to-door.

That business - Provident - has a network of 5,500 agents who call each week at the homes of 900 thousand people in the UK. That is 32 homes each per working day.

And they originate credit and collect loans.

Here is an extract from the annual report:

According to this the agents are primarily paid commission on what they collect, not what they lend.

Just imagine this job. Being paid for collecting on tough debts in the rainy, dark north of England, a bit like an old rent collector, just a little more seedy.

By comparison my life (and probably yours) is sheltered and easy.



strowger said...

Provident is a great business and made me a lot of money in capital appreciation and dividends over the last decade.

It always looks slightly expensive but it just keeps growing and growing. Management have been nimble, moving into and out of new markets as regulation changes; doorstep, credit cards, car loans, etc.

It suffers (and small investors profit) from the "HQ not in London" problem - if the HQ, investor relations, and AGM are all up North then the City of London isn't interested.

Anonymous said...

Tough job indeed but I agree with Strowger - it's been a rare winner among UK financials. You can poke fun at their foray into credit cards, but they tend to move only when they see clear advantage. It's nothing like their London peers' comical efforts to become global investment banks.

Alan Richards said...

A similar business called Cattles blew up in 2009 because of accounting irregularities, so I guess it's right to be cautious on Provident given that we are likely entering a Brecession. On the other hand group gearing is only 2.2x and Vanquis started business in 2003 so it got through the financial crisis intact. I'd be a little bit wary about basing a bear case on what you read in Money Mail.

strowger said...

I totally agree that the sector stinks in many respects - including ethics - but Cattles was actually a fraud wasn't it?

Provident does just fine out of recessions - they drive more people to their type of lending.

I've no position anymore (sadly), not talking my book here.

Richard Wetherell said...
This comment has been removed by the author.
smokeyd said...

Just like the old days of Pearl Assurance and whatever else AMP bought in the UK. Agents who sold high commission life insurance policies to poor Northerners and then spent the next 5 years visiting them to collect the premiums . Didn't that end well?

Harry Beck said...

It is a great business and is very similar to how the old debit insurance companies were operated in the USA, with debit insurance agents collecting premiums from small policies weekly. The idea was that they would know the entire neighborhood, and be there when there was an opportunity for another sale. Out of sight, out of mind...right? Anyhow, Provident is doing exactly the same thing but with lending.

Jack S said...

Lending to poor people from a purely economic standpoint is superb: they are price insensitive and don't care about interest costs. Usually because they are desperate/don't understand basic maths. However, one has to question the ethics of handing out a bunch of credit cards to people, that subsequentally max them out, to purchase a bunch of consumer crap they don't need and then spend the next 17 years paying the minimum payments...

Nick said...

strowger - they moved their HQ and IR to London a couple of years ago. It's in the Walkie Talkie.
I used to know these guys well.
As loan sharks go, they are very much at the whiter-than-white end if that's possible.
- No hidden fees.
- Not even a fee if you miss a payment. (They use the threat of no further loans to make people repay even once they go delinquent.)
- They write down a loan as soon as one payment is missed.
- The ladies doing the collections are usually friends/acquaintances with the people they collect from, it's more social than it sounds!
- The shift from paper-based to tablet is going to be huge for them.
- It's a part time job and flexible so fits very very well around childcare.
- On the credit cards they specifically target "sub-prime" meaning NO credit history not POOR credit history. Often these cards are the only way for students and migrants to start building any kind of credit history.
- Their CEO's last name is Crook.
- They were deeply involved in the regulations to prevent more predatory lending behaviour by pay-day lenders.

Not talking my book either any more. Although I have probably drunk the company cool-aid.
Nevertheless, everyone we met was laser focused on providing a valuable, up-front, transparent and honest service to an under-appreciated demographic.

strowger said...

Nick - thanks - didn't know they'd moved (I sold out of everything about 2y ago).

Peter Crook was my biggest concern about management - not anything that he does - just that he's clearly superb at what he does, but so fat I worried he'd drop dead.

Anonymous said...

Just picking up on a comment from Nick above.

I can't speak to the company but I can speak to the difficulty of getting a decent credit score in the UK.

As a fairly recent migrant to the UK (albeit one with a British passport who has never lived here) - I can't believe how hard it is to get 'on the grid' when it comes to credit. I have a six figure salary, no dependents, put a couple of grand a month into a savings account and after 6 months had to get 'special approval' for a credit card with a £500 limit with the bank which sees my salary coming in every month and has the savings account which gets topped up each payday.

I was watching my credit score on equifax slowly tick up month by month - to finally attain the lofty heights of 'average' only to shoot down to 'poor' in the space of a week for the gross financial crimes of having a month end credit card balance of £370 (so classed as using a very high percentage of the available balance) and swapping my electricity provider (who did a credit check on me as part of the switch).

Just as well I don't actually need a credit facility - just want to get a cashback card or a card which earns rewards points. It would be a nightmare if you actually needed to borrow or had actual financial problems.

Dan Davies said...

Nick is right. It's not such a tough job. If you live in a town like that it's probably one of the best ones going if you like talking to people and helping them (and judging them, but who doesn't like that?). Provi's agents tend toward the matriarch type. The only sanction they have on borrowers is not making any more loans, so paying on collection just means paying on underwriting)

Provident is the UK business these days - they demerged the international operations doing the same thing in Poland and Mexico. Now *there's* a tough job.

Jing said...

522.2 m receivable / .9 m customer = 580 pounds receivable per customer
Average loan size is 100 to 2000. Use 2000. the rate is 580/2000 ~= 30%
Does UK outlaws such high rate?

strowger said...

There is regulation but you have to be a lot worse than Provident to be caught by it: https://www.fca.org.uk/news/fca-confirms-price-cap-rules-for-payday-lenders

30% is not bad, the risk is very substantial.

Anonymous said...

Jing you are doing the math wrong... Receivables are just loans outstanding, not periodic interest.

That said -- for folks more familiar with the business, what rates do they charge?

Collecting door to door must be very expensive. How do they earn good margins / ROE without charging very high rates of interest?

Jing said...

you are correct. Just checked with someone with experience on balance sheet. 522.m is the loan par amount - default + recovery.

Let me try again: 105 million profit before tax, presumably interest income.
So, 105/.9 = 117 pounds interest per customer. Loan size is 100 to 2000.
If the average loan size is 1000 pounds, then the rate is 11.7%. 500 pounds, 23.4% ...

Jing said...

oh, actually, 522.2 m receivable, 105 profit before tax and interest. Assuming loan par outstanding is stable over a year and rate is constant, the rate is 105 /522.2 = 20%. The avg loan size is around 500

Anonymous said...

Mainstream UK banks charge over 20pc pa on their standard credit card product if you don't repay in full on the due date.

Anonymous said...

As a result of this post I caused my wife to apply for a credit card with Vanquis. She has a 6 figure income but for various reasons doesn't need a national insurance number, can't get on the electoral roll and doesn't have any credit history - so is more or less dead to every high street bank.

Filled out the forms - interestingly they asked for total household monthly income - not her income. When I plugged in the household monthly income the system made her confirm that the income was a monthly and not annual figure.

She got a pre confirmation email within a few minutes and on the follow-up call the next day they asked the usual questions to confirm the information in the form and interestingly then asked what proportion of the household income she had access to.

After all that was done they said that the credit limit on the card would be £500 and would take about a week to arrive but in the meantime you could get a £200 cash advance in your account the next day. They pushed this especially hard.

The card turned up within 3 days. Since that time my wife has been bombarded with emails, smses and letters from numerous grubby lenders - which makes me think that they have sold her details to other lenders.

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