Amigo ramped up risky lending before flotation

THE City watchdog is preparing a crackdown on ‘guarantor’ lenders amid revelations Amigo targeted higher-risk borrowers before its £1.3bn stock market float.

Regulators at the Financial Conduct Authority are taking aim at the industry, which allows hard-up consumers to borrow money provided a friend or family member agrees to pay it back if they default.

The FCA has said it is concerned about the number of guarantors who are having to step in and repay debts, triggering speculation the watchdog is about to take action.

Amigo, the biggest player in the industry, says that fewer than 10pc of its loans are repaid by guarantors and this number is static. But it is facing questions over its use of so-called pilot loans, which allow it to target customers whose credit records are so poor they would not ordinarily meet lending criteria.

Rapid growth in pilot lending helped boost the size of the firm’s loan book in the run-up to its flotation last summer. But it also led to higher defaults as borrowers struggled to pay the money back.

It is not known if pilot lending will feature in the FCA’s investigation.

Amigo took an impairment charge against the risk of loans going bad equal to 21.3pc of its revenue for the year to March 2018 – up from 6.8pc for the previous 12 months.

Amigo typically targets customers whose credit history is so poor they cannot borrow from a mainstream bank, and charges them 49.9pc interest. But in the pilot schemes, the company relaxes its lending rules still further so that borrowers with even worse records can get cash.

According to results released weeks before it floated, Amigo issued £99m of pilot loans in the year to March 2018, equal to 21pc of its total book.

In the previous year, this higherrisk lending accounted for only 11pc of the total according to analysts at stockbroker Goodbody.

Without pilot lending, Amigo’s overall loan book would have been smaller, meaning it might have attracted less money from investors when it went public.

The Goodbody analysts said: ‘ A cynic might say Amigo pushed hard to drive substantive growth pre-initial public offering.’

The analysts added that Amigo has cut back on pilot lending since its float, with them accounting for just 8pc of new lending in the first half of the current financial year.

An Amigo spokesman said: ‘The pilot lending programme enables research on the benefits of lending to borrowers who have guarantors who fall just outside of the boundaries of our credit scorecards.’