The Bradford-based firm said an ongoing review has made it clear that the business needs to address the issue of rising customer complaint volumes.
The group said the operating environment for home collected credit has changed materially during the second half of 2020. Provident has decided that a Scheme of Arrangement is necessary in order to address the issue of rising customer complaints as it works to position the home collected credit division for the future.
Analyst Gary Greenwood at Shore capital said: "While underlying trading has been better than expected during the fourth quarter, the disappointing news around rising complaints and the FCA investigation is likely to weigh on the share price in the near-term.
"Nevertheless, we reflect that the valuation remains depressed in a historical context.... CCD aside, we believe that the prospects for the rest of the group remain strong and expect demand for its products to increase as a result of the pandemic."
Provident said its performance was better than expected in the last three months of 2020 after a "tremendously difficult" year for its customers.
The lender said that both its Vanquis Bank division and its vehicle financing arm, Moneybarn, were profitable during 2020.
Malcolm Le May, Provident Financial's CEO, said: “I am pleased to report that the group performed slightly better than management’s expectations during the fourth quarter and, as a result, for the year as a whole.
"There is no doubt that 2020 was a tremendously difficult year for our customers. My colleagues across the group worked tirelessly to ensure the continued support our customers needed during these challenging circumstances and, for that, I would like to extend my most sincere gratitude to everyone at Provident Financial Group.
"Vanquis Bank, with its banking licence and ability to take retail deposits, and Moneybarn, which was able to grow its market share during 2020, remained profitable throughout 2020 and are both well positioned to take advantage of growth opportunities over the medium-term."
He said that whilst the latest Government lockdown has reduced the demand for unsecured credit in its markets so far this year, it continues to see scope for growth opportunities, post-Covid, over the medium-term.
"The group, supported by its robust capital and liquidity positions, will continue to focus on many of the objectives we set out at our Capital Markets Day in 2019, which includes expanding our digital footprint, investing in new products, focusing on funding efficiencies and becoming a broader banking group for the financially underserved customer. I look forward to updating the market at our 2020 results presentation in May," said Mr Le May.
At Vanquis Bank, the lockdown led to lower customer spending in the fourth quarter of 2020, consistent with the wider market. Impairment trends remained favourable for the period and the take-up of payments holidays remained below expectations.
At the end of February 2021, receivables were 28 per cent lower year-on-year, driven by reduced customer spend and lower customer bookings during 2020. However, Vanquis Bank profitability has been impacted positively by reduced impairments, under IFRS 9 accounting, as a consequence of receivables balances falling.