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Provident Financial shares ease as FCA unveils home-collected credit sector reforms

The City regulator said the changes aim to raise standards in disclosure and sales practices preventing home collected credit (HCC) firms from offering new loans or refinancing during home visits without the customer specifically requesting this

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Analysts at Numis Securities said the FCA changes will be “unhelpful” for Provident Financial, but are likely to disproportionately impact very small HCC providers

Provident Financial Group PLC (LON:PFG) saw its shares ease back on Thursday after the Financial Conduct Authority (FCA) unveiled a package of reforms in the home-collected credit sector.

The City regulator said the changes aim to raise standards in disclosure and sales practices preventing home collected credit (HCC) firms from offering new loans or refinancing during home visits without the customer specifically requesting this.

READ: Provident Financial's outlook 'finally looking up' after tough 2017, says Barclays

The measures will also bring greater controls over the refinancing process, which the FCA believes may not work well for consumers.

In a note to clients, analysts at Numis Securities noted that changes in this area are estimated to save consumers up to over £34mln a year and will presumably cost home credit firms at least the same amount, with the change in process, probably a lot more.

The analysts pointed out, however, that the market appears to be valuing Provident Financial's HCC business at less than nothing and the changes are likely to disproportionately impact the 400 or so very small HCC providers.

Nevertheless, they added, the FCA changes will be “unhelpful” for Provident Financial.

Numis, however, retained a ‘buy’ rating and 904p price target on Provident Financial, shares, which in early afternoon, were trading at 636p, down just 0.1%.

Non-Standard Finance unphased

Among the smaller listed HCC providers, Non-Standard Finance PLC (LON:NSF) issued a statement in reaction to the FCA’s High-Cost credit review saying that “whilst the Proposals will require us to make some minor amendments to our operational procedures in home credit, there will be no impact on our two largest divisions, branch-based lending and guarantor loans.”

The firm added: “We do not anticipate that the Proposals will have a material impact on the Group's future financial performance.”

Non-Standard Finance shares held steady at 64.5p.

Rent-to-own, overdrafts also targeted

The FCA review also said it would consider introducing a price cap on rent-to-own, where high street stores groups, such as BrightHouse, sell cookers and household appliances on weekly payment plans.

It also ordered banks to do more to help the 19mln people who regularly use their overdrafts but dismayed campaigners seeking a cap on the £2.3bn fees made when customers go into the red.

Customers will instead be given more alerts via mobile phones, warning of charges as well as requiring the introduction of online tools to make the cost of overdrafts clearer.

And messages on cash machines that customers have “available funds” that include their overdraft will also be banned.

Quick facts: Provident Financial

Price: 422.8 GBX

LSE:PFG
Market: LSE
Market Cap: £1.07 billion
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