Amigo Loans on brink as FCA opposes refund plan

AMIGo Loans is on the brink of collapse after the City watchdog threatened to derail its customer compensation plan.

The guarantor lender, which has been battling a slew of complaints, has set up a special scheme which would allow borrowers to receive at least a part of the redress they were due.

But after weeks of sitting on the fence, the Financial Conduct Authority (FCA) has said it plans to challenge the compensation plan in court next week.

Amigo chief executive Gary Jennison called the last-minute intervention ‘very unhelpful’.

he said: ‘If the scheme doesn’t get approved we will have to shut the doors because we don’t have the money to pay the claims in full. Amigo will go insolvent in very short order.’

Amigo, which lends to customers with a poor credit score, was forced to set up the scheme after rules around affordability checks shifted last year. Thousands of customers, encouraged by opportunistic claims management companies, complained it had handed them loans they were never able to repay.

The compensation bill quickly ballooned, and Amigo realised that it would not be able to meet the cost. Jennison, who took the helm last year in an attempt to overhaul Amigo, came up with a compensation scheme worth up to £35m. But this will not cover the total bill, estimated to be more than £150m.

The plan must be approved by a high Court judge next week.

But the FCA now plans to send lawyers to that hearing to challenge the scheme, claiming it is not fair that borrowers will not get all the money they are due.

The watchdog thinks Amigo should tap its shareholders and bondholders for more money, so it can give customers the full amount due. But Jennison said that with just two major institutions and 8,000 individual savers on its shareholder register – and the shares down 90pc over the last two years, and at just under 23p yesterday – it wouldn’t have a chance of raising the cash.

Amigo’s troubles came just one day after rival provident Financial revealed it was closing its 141-year- old doorstep-lending business, because it can no longer turn a profit.

With the level of choice rapidly diminishing in the sub-prime lending market, the FCA said its research suggested many customers could instead borrow from family and friends.

But Jennison ridiculed this. ‘We all know illegal lenders start off as friends – people you meet on Facebook, WhatsApp, at the pub, on the school gates. I’ve worked in this sector for 43 years,’ he said.