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Amigo aiming to limit mis-selling payouts

Emma Lunn
Written By:
Emma Lunn

The guarantor lender has asked the courts to consider a new scheme that would cap payouts to customers to stop it going bust.

Amigo’s board wants to use a ‘scheme of arrangement’ under part 26 of the Companies Act 2006 in relation to the group’s redress claims.

Using the scheme would mean that customers who are owed money due to being mis-sold a guarantor loan will not be paid in full. However, Amigo says the scheme would allow all customers to be ‘treated equitably’.

How much customers would get is not yet clear, but Amigo has said it would initially set aside £15m, and will add up to another £20m plus 5% of profits over the next three financial years.

There would be a six-month deadline to submit a claim.

What does this mean for borrowers?

Under the scheme there would be an automatic right of set-off for the redress due to claimants against their current outstanding loan balance (‘balance adjustment’).

Any redress due, where loans have been satisfied, including after the balance adjustment, will be aggregated with all the outstanding other unsettled redress due on redress claims and paid out equitably, to the extent they can be, on a pro-rated basis from a pool of assets.

If you have already got an agreed payout from Amigo or had a payout ordered by the Financial Ombudsman Service, you should still receive the amount of money agreed.

But if your complaint has not yet been resolved, it could be paused at any point. You may need to resubmit your claim if the Financial Conduct Authority (FCA) approves the scheme Amigo suggests.

Amigo will continue complaint handling until the FCA makes a decision.

Amigo complaints

Amigo started to receive increasing numbers of complaints in 2018 and where a customer’s complaint is upheld, Amigo must refund the interest paid or update the outstanding balance.

Many of the complaints centre around affordability and mis-selling concerns. Regulations state that borrowers must be able to afford loans without having to borrow more or falling behind on other bills and debts.

The FCA has been investigating Amigo over the way it assessed customers’ ‘creditworthiness’.

What does Amigo say?

Gary Jennison, Amigo CEO, said: “Together with the board of Amigo, I believe that a successful scheme of arrangement will provide certainty to the total liability arising from customer complaints. This scheme is intended to give a fair outcome for all our stakeholders, taking into account creditor priority rankings and will allow the company to return to lending. We provide vital financial inclusion to millions of borrowers in the UK unable to access mainstream credit, which will become even more important as the UK recovers from the economic impact of Covid-19.

“Notwithstanding the prospect of a scheme addressing our redress claims, there are also other difficulties in the wider economy, including the very real and immediate impact of Covid. The board is confident that it will be able to restart lending in early 2021, though many challenges remain on the way to Amigo returning to the success that the board believes Amigo can achieve for its customers, employees, lenders and all its other stakeholders.”