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Amigo Loans set to return to lending by year end

Paloma Kubiak
Written By:
Paloma Kubiak
Posted:
Updated:
07/03/2022

Amigo Loans is set to return to lending by December as the City regulator confirms it won’t oppose its redress scheme, which requires it to stay in business so customers get more of their money back.

The Financial Conduct Authority (FCA) has confirmed it won’t oppose Amigo’s scheme of arrangement proposals which is due to be heard at the High Court tomorrow.

It said the scheme proposal “represents an improvement on last year’s failed proposal and has the support of the independent creditors committee set up to advance the best interests of those customers owed redress”.

As such, if the proposed scheme is sanctioned by the court, Amigo could – subject to meeting certain conditions – resume lending within nine months of its approval.

Amigo’s ‘preferred solution’

Amigo started to receive many affordability complaints and mis-selling concerns in 2018. Where a customer’s complaint was upheld, Amigo was ordered to refund the interest paid or update the outstanding balance.

However, it was facing collapse due to the influx of compensation claims and in May 2021, it published a rescue plan which was rejected by the High Court for being ‘inherently unfair’.

In December 2021, Amigo proposed two new alternative redress schemes, with both options seeing affected borrowers receive less money than they are owed.

The first ‘preferred solution’ would see cash returns to creditors at an estimated 42p per £1 of claim. It would also require Amigo to start lending within nine months of approval, and it would need to raise at least £70m of finance from investors within a year to partially fund further payments of £15m to the redress scheme.

The second ‘fallback solution’ is a ‘wind-down’ scheme where claimants are predicted to get 29p of every £1 they’re owed. This scheme will eventually result in Amigo shutting down.

The FCA said since its previous scheme of arrangement was rejected by the High Court, it has continued to engage with the sub-prime lender to get a “better, fairer deal for Amigo customers due redress”.

Resume lending

Amigo is not currently lending as it’s pursuing a scheme of arrangement. Complaints with Amigo are also on hold until a redress scheme is approved.

Ahead of the hearing at the High Court tomorrow, the FCA has written to Amigo to confirm that it “does not intend to oppose its proposals”.

It added that while the proposal hasn’t been voted on by eligible creditors, it “reserves its rights to intervene if facts and circumstances change”.

Further, Amigo could resume lending if the scheme is sanctioned by the court.

The FCA letter read: “We also expect to be kept apprised of any material and/or potential developments in relation to the schemes or their terms, any objections raised by consumers, and any modifications or changes the firm proposes to make as a result. In short, our expectation is that the development of the schemes remains an open and constructive process.”

The regulator said Amigo’s revised approach to lending must be compliant with FCA rules and “recognising the centrality of the firm’s proposed return to lending to the development of the schemes” it could return to lending subject to the following conditions being met:

  • New scheme being sanctioned by the court
  • FCA must be satisfied that Amigo meets the FCA threshold conditions
  • Outcomes testing of the firm’s new lending system being completed to the FCA’s satisfaction
  • Dealing with any other issues to the FCA’s satisfaction.

“If the conditions above are met, we expect the return to lending to have taken place no later than nine months after the new business scheme effective date, as set out in the new business scheme terms shared with us on 4 March 2022”, the FCA said.

It added that if Amigo does return to lending, “the FCA will continue to supervise it closely”.