Morses Club PLC (AIM:MCL) shares crashed as it became the latest doorstep lender to try to insulate itself from mis-selling complaints.
Peer Provident Financial closed its doorstep lending arm in 2021 and shunted the business into a special purpose vehicle to cap the soaring costs of compensation.
Guaranteed loans group Amigo did something similar as mis-selling claims soared during lockdown and now Morses Club is attempting to go down the same route.
In a statement today, the lender said it is in talks with UK regulator the FCA over establishing a scheme of arrangement to cap customer redress claims.
"Whilst the directors consider that Morses Club has adequate liquidity for the immediate future, they believe that without a potential scheme, the level of redress claims could jeopardise the group's future," it said.
Approval from the Financial Conduct Authority is needed, as well as the majority of affected customers and a court sanction.
Morses, as well as saying it is in talks about extending its current funding facility of £35mln from its current end on March 2023, also needs to agree a new business model with the FCA and secure its funding as its current facilities are in place until March 2023.
It said a £45mln exceptional provision will be booked for the current year, with adjusted profits to be 30-40% below current analyst consensus and there will be no dividend.
Morses Club added it has tightened its lending policies and, as a result, has seen a decline in sales volumes.
In addition, the structure of the loan book has changed due to a higher concentration of new customers, something that will make 2023 a transition year in which legacy issues can be largely resolved.
How much claimants would receive through the Scheme was not revealed.
Gary Marshall, Morses Club’s chief executive, said: “A successful Scheme of Arrangement would provide more certainty to the total liability arising from customer complaints and ensure that we can reshape the business for the future.
“The potential scheme is intended to provide a fair settlement for all eligible customers, whilst securing the Company's future and enabling us to continue to provide access to credit for an underserved and growing demographic."
Shares fell 43% to 4.8p.