Amigo Loans has set up a subsidiary to manage a redress scheme for complaints – and warned that if the scheme fails, the lender will likely enter insolvency.
In a letter published on its website, the guarantor lender explained that setting up the new business was the most effective method for a redress scheme to deal with historic customer complaints. However, Amigo added that failure of the scheme will result in customers receiving no compensation.
The scheme has been designed to manage redress claims from current and former customers (both borrowers and guarantors) about historic loans issued before 21 December last year. These claims are primarily related to affordability and they include cases where liabilities are owed to the Financial Ombudsman Service (FOS).
Amigo also stated in the letter that if the scheme fails, Amigo will "likely go into insolvency and no compensation would be paid to customers". Amigo has also confirmed that it will have to utilise all of a £160m complaints provision, which it announced last year.
The alternative lender explained that it has continued discussions with the Financial Conduct Authority (FCA) and FOS, to keep them informed of the scheme, as it has progressed.
The FCA required the appointment of a skilled person in connection with the scheme, which is at an early stage. The skilled person has been appointed to review the redress methodology, then review its implementation, and to comment on fairness of the scheme. The skilled person will also assess the extent to which Amigo is meeting threshold conditions.
The FCA will also continue to assess whether Amigo is failing (or is likely to fail) to satisfy the FCA’s threshold conditions and its proposed approach to future lending.
The regulator informed Amigo there is a risk that it may impose a requirement on Amigo’s regulatory permissions which restricts it from continuing its business and will affect the ability to implement the scheme.
Amigo also provided an update on its voluntary requirement related to complaints announced on 3 July 2020 and its related stock exchange note on 3 November 2020. Since November last year, more historic complaints were identified, and 1,192 of them are in the process of being resolved.
The guarantor lender believes all of the complaints provision reported within its half-year report would be utilised to cover the costs of settling pre-scheme complaints, including about £30m processed in the quarter ended 31 December 2020. This total is now £159.1m.
Amigo also provided an update on its Covid-19 payment holidays, confirming that the number of active plans had reduced to around 13,000, with about 42,000 plans ending and returning to standard payments and just under 7,000 settled.
Gary Jennison, chief executive of Amigo, said: “Amigo faces very serious challenges from historic lending to customers. We are focused on sorting out the problems of the past, and will not rush our future. The scheme will also enable us to pay redress to existing customers who have a valid claim, including making further payments out of future profits. A return to lending will help to rebuild Amigo and, a return to profitability, will further increase the redress payments to customers with valid claims using the scheme."
The Financial Ombudsman Service detailed expectations of alternative lenders in this broadcast session at the Credit Summit last year. (Readers may have to register to view the broadcast).