UK Bank to Stop Lending, Focus on Debt Purchasing and Collection

A subprime lender in the United Kingdom has decided to scrap its consumer credit business to focus on its already-considerable collection unit. The company also said that it is expanding its accounts receivable management business to focus on debt purchasing.

Manchester, England-based London Scottish Bank said in its annual report Tuesday that it will shutter its consumer lending unit after disappointing results for its 2007 fiscal year. The company lost $31.2 million in the year ended October 2007, a symmetric reversal from the $31.2 million in profit the company reported in fiscal 2006. London Scottish focuses on small unsecured consumer loans of less than $1,000 typically made to people with poor credit history.

But the company’s debt collection business, Robinson Way, reported strong growth in 2007. It posted profits of $27.6 million, a 57 percent increase from 2006, on revenues of $66 million, up 17 percent from revenues in 2006.

Not only will London Scottish shift to emphasize ARM, but Robinson Way will shift and invest even more into acquiring debt portfolios.

Robinson Way’s major business is contingency collections but it also claims to be a Top 10 debt purchaser in the UK. The company, active in collections since 1978, has bought 150 consumer debt portfolios since 1992, according to in its annual report. In fiscal 2007 alone, the company bought $70 million in debt, up sharply from the $16 million it bought in 2005. Nearly 90 percent of the debt Robinson Way buys is either credit card portfolios or consumer loans from the top 5 British banks. The company said in its report that the market represents a huge growth opportunity in Europe.

“The directors believe that the group has an excellent future focused on the further development of Robinson Way. This is a good business, with competitive advantage in a growth market,” said CEO Robin Aston.

Robinson Way will still have a significant presence in the contingency collection market, boasting 1,200 collectors and sending more than 35,000 consumer letters each day. It declined to comment for this article.