High Court approved Amigo Loans program to safeguard survival

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Britain’s largest guarantor lender, Amigo Loans, has been given the green light from the High Court to implement a plan to cap the cost of indemnifying poorly sold loans.

Up to 1 million current and past borrowers who may have made unaffordable loans as early as 2005 will now have until May 12 to vote on proposals that could see borrowers receive less than 10% of what they are owed and leave the lender would determine if the loans were mis-sold.

Borrowers with an outstanding loan will be able to obtain a reduction in their balance and release from their guarantors if their request is maintained.

Amigo Loans – founded by James Benamor – has been given the green light from the High Court to implement a program that would cap compensation payments to badly sold borrowers.

The subprime lender, which charges an APR of 49.9 percent, has always told borrowers that its proposed plan was the only way applicants would receive compensation for a poorly sold loan.

On the claims website, where borrowers can now vote, he said: ‘To put it simply, if you want to receive a refund on your claim, it is essential that you support the program by voting for.

“ If enough customers don’t vote for the program, it won’t go ahead and Amigo will go bankrupt. This would mean that customers with a valid repair request will not receive any refund for their complaint.

He told the London Stock Exchange last Wednesday that the Financial Conduct Authority does not support the program but does not “ currently propose to take further regulatory action that could bring the system to a halt if accepted by creditors and sanctioned by the court ”.

He added that the regulator was concerned that badly sold borrowers would receive far less than the value of their claim and the “claims assessment methodology”.

Its share price fell from 12.82 pence to just under 16 pence on the news, and the price jumped to 17.76 pence on Wednesday morning after the High Court sanctioned the plan.

A letter sent to the lender and court last Tuesday by the FCA and released this morning also expressed concern that bondholders and shareholders would not be affected by the scheme.

Indeed, five of Amigo’s directors could receive £ 7.3million in bonuses if the company’s stock price recovers.

Shadow Treasury Minister Pat McFadden and Conservative Chairman of Parliament’s Special Treasury Committee Mel Stride have also raised concerns about the implications of the scheme.

“ Any situation in which directors could receive bonuses on the basis of a reduction in fair and reasonable compensation to consumers would clearly be of major concern, ” said Mel Stride. The Guardian.

Tory MP Mel Stride and shadow Labor Party Treasury Minister Pat McFadden have raised concerns over the Amigo loan scheme

Tory MP Mel Stride and shadow Labor Party Treasury Minister Pat McFadden have raised concerns over the Amigo loan scheme

Amigo told the High Court that a question of shareholder rights to invest more capital would be unlikely to succeed.

The lender, which forces family and friends to vouch for borrowers on its high-cost loans, has been mired in financial peril as it grapples with a growing number of complaints about poorly sold loans.

It was the most criticized financial company in the second half of 2020, according to the Financial Ombudsman Service, with complaints to the FOS dropping from 317 to 12,854 in one year.

This represented almost 10% of all complaints lodged with the ombudsperson between July and December, while he received 2,790 more in the first two months of 2021.

Number of new complaints from the Financial Ombudsman Service regarding Amigo Loans
Six month period Number of new complaints
1st semester 2016 53
2nd semester 2016 69
1st semester 2017 74
2nd semester 2017 80
1st semester 2018 117
2nd semester 2018 231
1st semester 2019 266
2nd semester 2019 317
1st semester 2020 1,163
2nd semester 2020 12 854
Source: Financial Ombudsman Service

There were 15,052 cases open at the end of February, while the just over 1,000 that were resolved in the second half of last year were held at a rate of 88%.

Amigo said he could not continue to pay badly sold borrower claims in full at the rate FOS had withheld.

Seven out of 10 of the cases opened at the end of February were brought by third-party companies such as claims management companies, said the FOS, who are looking for a new payday after the end of the gravy train. payment protection insurance in 2019.

The cost of handling complaints rose from £ 26.6million to £ 116million in the nine months leading up to the end of 2020, according to Amigo’s latest accounts, helping the lender to incur a pre-tax loss of £ 81.3 million.

Amigo Loans recorded a pre-tax loss of £ 81.3million in the 9 months leading up to the end of 2020 after having to set aside £ 150.9million to cover claims - a 707% increase from compared to the previous year.

Amigo Loans recorded a pre-tax loss of £ 81.3million in the 9 months leading up to the end of 2020 after having to set aside £ 150.9million to cover claims – a 707% increase from compared to the previous year.

But the High Court’s approval puts Amigo one step closer to being able to ease the pressure on its balance sheet, with the program now due to be voted on by around 1 million past and current borrowers before being reconsidered by the courts on May 19. .

If approved, the program could start in mid-May with payments starting in 2022.

The regulator also said in its letter that Amigo had made no attempt to “ comprehensively explain to customers in the system documentation the approach taken by the company to adjudicate their claims ”, in effect forcing the Amigo’s creditors to vote blindly on the system.

Any situation in which directors could receive bonuses on the basis of a reduction in the fair and reasonable compensation of consumers would clearly be of major concern.

Mel Stride, President of the Treasury Committee

However, the lender said the letter predates the judge’s approval and has prepared an extensive range of how-to videos to provide clients with the information they need to understand the system.

She said she wanted to make the legal wording as accessible as possible.

The scheme is expected to be funded with a pot of at least £ 15million, with an additional £ 20million plus 15% of pre-tax profits over the next four years potentially added.

With Amigo setting aside £ 150.9million to cover complaints over the last nine months of 2020, Sara Williams, a debt advisor who runs the Debt Camel blog, previously suggested to This is Money that borrowers’ “ can only get very little compensation ” through the system.

She said: “Under the proposed program, 150,000 current clients will see their balances reduced if their application is accepted – just as they would if Amigo went into administration,” she said.

“Amigo says these pay cuts will cost him around £ 85million. The £ 15million Amigo is offering to pay back the 700,000 borrowers and guarantors with paid loans will yield tiny repayments, well below 10%.

She said it could be as little as 5%, and described the loss-making lender’s proposal to add 15% to its profits over the next four years as a “ traffic jam in a few years, if at all. ” .

Amigo chief executive Gary Jennison said: ‘We are delighted that the court has agreed to the project to continue.

“We look forward to our customers having the opportunity to vote and support the program, which we believe is the only real option for customers who are entitled to redress to receive cash compensation.

“Since it is in their best interest and the real alternative is insolvency, we strongly encourage our 700,000 former clients and 300,000 current clients to vote for their money and support the program.

“Our customers will be provided with all the information they need to understand exactly what the program means to them, including details of a dedicated phone number and email address to answer all of their questions.”

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