A division of troubled lender Provident Financial has been told to pay almost £169m in compensation to customers.
The Financial Conduct Authority (FCA) said Provident's Vanquis unit failed to properly disclose charges on one of its popular repayment plans.
The Bradford-based company has also been fined £2m.
Provident announced a £123m loss in 2017 and plans to raise £331m from shareholders to meet the extra costs and bolster the firm's finances.
Provident run into trouble with the FCA for mis-selling its Repayment Option Plan (ROP) – an option on its Vanquis credit card.
While it was supposed to help customers manage their debt, the product put borrowers further into debt, rather than help them cope with debt woes, the FCA concluded.
Mark Steward, director of enforcement and market oversight at the FCA, said: "Most Vanquis customers chose the ROP to help manage their credit without realising instead that the product might lead to their indebtedness increasing.
"Vanquis has decided now to do the right thing by acknowledging the wrong-doing and offering to compensate its customers."
The FCA said none of the Vanquis sales calls that it had monitored had correctly informed potential customers of the charges they would pay under the ROP credit plan.
The scheme allowed borrowers to freeze repayments on their credit card debt temporarily. Whilst agents explained the monthly charge of £1.19 to £1.29 per £100 of credit, they failed to mention the additional interest rate that was charged on outstanding balances, which could range between 19.9% and 79.9%.
Vanquis has been ordered to pay back the interest payments to any customers who were not properly informed.
How compensation will be paid
In most cases, Vanquis customers who are eligible for compensation will be contacted directly and paid automatically.
The company will use its records, and other information such as data from credit reference agencies, to make sure they have the correct contact details for these customers.
Contact will most likely be made through email, but possibly via phone or letter. If that customer was dealing with a debt collector, rather than Vanquis, then the debt collector will be in touch.
The compensation will be paid by cheque or, for those with existing debts on their credit card, their balance will be reduced.
Customers whose accounts have been unused or closed for more than two years will be contacted at their last known address, phone number or email and will need to respond before their compensation is paid.
Provident Financial offers short-term loans, collecting repayments at the door in person.
It ran into trouble last year following an attempt to restructure its employment model, replacing self-employed agents with full-time staff "customer experience managers".
However, the move failed. The company ended up issuing a number of profit warnings and its chief executive resigned.
As well as Vanquis Bank, Provident also owns sub-prime car loan business Moneybarn and consumer credit brand Satsuma.
A second FCA investigation into Moneybarn has not yet been resolved.
Provident Financial was founded in 1880 and provided loans through the Wall Street crash of 1929 and both world wars.
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