Provident Financial, the U.K. financial company, announced Tuesday (Feb. 28) that it is laying off roughly 2,000 of its agents who are self-employed and hawk high cost loans in low-income neighborhoods.
According to FT.com, after reporting full-year earnings results, Chief Executive Peter Crook said, the company plans to “eliminate” 4,500 self-employed debt collection agents and create 2,500 customer experience manager positions.
Provident Financial said doorstep lending represents less than half of its annual profits. The report noted that during the last three years, Provident, which is the U.K.’s biggest doorstep lender, has overhauled the unit as it moved into making loans online. It went on to state that in 2013, Provident had reduced the number of agents from 10,000, and in 2016, the number of doorstep customers declined nine percent to 862,000. At the same time, the loan book increased 7.3 percent, with agents going after higher quality customers who tend to borrow more.
Doorstep loans usually have longer terms than payday loans and are typically for small amounts. Just like payday loans, they carry high interest rates and are often used by cash-strapped borrowers.
Providers have argued that the face-to-face model leads to lower default rates, as lenders build close relationships with customers. While there is a place for payday loans, there are also a lot of scams. A recent action by the Federal Trade Commission, in which the agency shut down a data broker operation that allegedly cheated consumers out of $7.1 million, highlights the issue. The scheme is accused of collecting sensitive data from people who thought they were applying for a payday loan and then selling the information to malicious companies that accessed bank accounts and credit cards without permission
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