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March 29, 2012updated 12 Apr 2017 11:47am

FSA hammers motor finance provider

Three directors of failed subprime lender Cattles and its subsidiary Welcome Financial Services have been banned from the industry by the Financial Services Authority (FSA) and fined a total of £700,000 for misleading information regarding the companys loan book. The Yorkshire-based finance provider was also censured for acting without integrity in the years leading up to the collapse of the company by understating default rates.

By Richard Irvine-Brown

Three directors of failed subprime lender Cattles and its subsidiary Welcome Financial Services have been banned from the industry by the Financial Services Authority (FSA) and fined a total of £700,000 for misleading information regarding the company’s loan book.

The Yorkshire-based finance provider was also censured for “acting without integrity” in the years leading up to the collapse of the company by understating default rates.

Cattles’ finance director James Corr and Welcome’s finance director Peter Miller were fined £400,000 and £200,000 respectively. Both men and Welcome’s managing director John Blake have been banned from working in any area regulated by the FSA. Blake was also fined £100,000 although he is appealing against the decision.

The FSA said all three would have been fined more had their personal finances afforded it; £750,000 for Corr, £400,000 for Miller.

Subprime gap

Cattles has not been receiving new business through Welcome Car Finance since 2009, leaving a giant hole in the subprime market.

At its peak, lending by the company was in the region of £150m per month by volume, comprised of four distinct areas.

An estimated 35% of finance was in secured loans, 25% in personal loans, 25% in standard hire-purchase through Welcome, and 15% through Welcome Car Finance hire-purchase.

In all, the company was writing approximately 5,000 car finance contracts each month with an average advance of around £7,000.

“Highly misleading arrears”

Cattles was listed on the London Stock Exchange in 2008 but suspended in 2009 after the company admitted it had underestimated the provision made to cover bad loans.

Both the Batley financer’s 2007 annual report and 2008 rights issue prospectus included “highly misleading arrears, impairment and profit figures”.

The report stated that £900m of Welcome’s £3bn loan book was in arrears when, in truth, the figure was roughly £1.5bn. Cattles reported a pre-tax profit of £165.2m in 2007 when it should have listed £96.5m loss.

Cattles and Welcome continue to collect loan repayments following a 2011 restructuring plan to avoid bankruptcy which left shareholders with 1p per share, totalling company value at £5m, compared to an earlier rights issue price of £1.28 when Cattles’ equity was valued at £1.5bn.

richard.brown@vrlfinancialnews.com

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