The company said the future of its doorstep lending arm was at risk if claimants did not approve the move.
Doing so would lead to payouts estimated to be around 10% of a compensation entitlement, but customers would get nothing were it to fold.
Provident has been lending on the doorstep since the 1880s and, at the last count, this part of the business had around 379,000 customers. Loans are often for small amounts, but not always.
Its lending is legal and approved by the City regulator, but it has been controversial. Some campaigners regard such operations as “legal loan sharks”.
One 52-year-old, who borrowed with Provident for 30 years, said he had taken loans totalling £60,000 but it was a “vicious circle” and he had made a claim for mis-selling, but had been rejected.
“It was for basic spending, and Christmas, but was too convenient,” he said.
The business also had a payday lending arm, called Satsuma.
As with many businesses operating in non-mainstream lending, there have been a flood of complaints that the appropriate affordability checks were not carried out when doorstep loans and payday loans were granted. Many of these complaints have been made through claims management companies.
Provident, in an update to investors on Monday, said the second half of last year had seen a 200% rise in complaints compared with the first half, and £25m had been paid out.
As a result, it has proposed a so-called scheme of arrangement, in which £50m would be set aside for compensation payments for claims made before 17 December last year, which are still unresolved.
“If approved, a scheme will bring certainty for stakeholders and ensure that customers with a legitimate claim get fair access to redress payments,” the company said.
“If the scheme is not approved, it is likely that the consumer credit division will be placed into administration or liquidation.”
Were this to happen, loans would still need to be repaid.
Sara Williams, who writes the Debt Camel blog, said: “The [regulator], the FCA is at fault here for allowing Provident to give all these unaffordable loans and for not insisting that it held enough capital to repay complaints in full.”
Provident has a profitable car finance arm called Moneybarn and a banking and credit card operation, for customers with a poor credit history, called Vanquis. These make up around 90% of its business.
Both would be unaffected by the doorstep lending arm going into administration, nor would they have to use funds to pay customer compensation on behalf of the doorstep lending part of the business.
“Is this how a responsible lender should behave? It could use the profits from Vanquis to pay the Provident refunds, but it is choosing to put the interests of its shareholders above the interests of its customers,” Ms Williams said.
The Financial Conduct Authority (FCA) is considering whether to endorse the plan, but is likely to have significant reservations about setting a precedent when other lenders continue to operate and pay compensation in full.
If it goes ahead, voting would take place in June or July.
The company has also announced that the regulator is investigating Provident for the way it handled complaints in the year to February.
Following the announcement, the company’s share price fell by nearly 30% in morning trading.
Many sub-prime lenders have argued that the demands of regulators over the way past mis-selling is handled has pushed them to collapse and left borrowers exposed to illegal loan sharks.