Loans firm Amigo to halt lending and wind down

Struggling high-cost lender Amigo has said it will halt all lending and wind down its business after failing to raise extra funds from investors.

Its failure has left more than 200,000 customers in the dark over compensation they will receive for mis-sold products, a debt expert said.

Amigo had been sanctioned by regulators for insufficient affordability checks on the people it lent to.

It had been trying to raise money to help pay the compensation owed.

Amigo lent to people with poor credit ratings at interest rates of up to 49.9%.

The business had sought a £15m cash injection from investors to help pay compensation to the 210,000 borrowers who had made complaints about the company.

But after “exploring several options” it said it had been forced to use its “fallback option” and would instead wind down the business and use surplus assets to pay off customers who were due redress.

“In due course, Amigo Loans Limited will be liquidated”, a statement said.

Debt expert Sara Williams, who writes the Debt Camel blog, said while Amigo borrowers who had complained “may be very worried”, they would still get some compensation.

“This just means there is a bit less cash to pay refunds. Originally, Amigo had hoped to be able to pay 41p in the pound to customers with an upheld complaint.

“By November last year this prediction had already halved to 20p as so many claims had been made. Now the scheme goes into the fallback option this may cut refunds to about 17p,” she added.

Ms Williams said people with current loans could still have their balances “reduced or wiped out”.

“Anyone with credit record problems can still get these cleaned if their claim is upheld,” she said.

Amigo specialised in subprime guarantor loans – where a borrower’s friend or family promises to honour the loan if payments are not made.

Such loans are mostly used by people who cannot source revenue from other places – however, lenders still have a duty to ensure the repayments can be made.

The FCA said that between November 2018 and March 2020, Amigo failed to have proper processes in place to assess the affordability of borrowers and those who acted as their guarantors.

That led to a high risk of consumer harm, both to borrowers and guarantors, the FCA said.

It ended up with thousands of complaints from borrowers who said the company had mis-sold them loans.

The regulator said last month it would have fined Amigo nearly £73m but decided not to because that would take away from the compensation customers would get.

On Thursday, the lender’s chief executive Danny Malone said it was a “sad day” for all those who had worked hard to address the “historic lending issues and rebuild a new Amigo”.

“It’s also a sad day for creditors due redress who will now receive a lower level of cash compensation than they would had the new business conditions been satisfied,” he added.

The firm, which describes itself as the the UK’s leading guarantor loan provider, dominated the market for almost a decade and profited after the demise of pay-day lenders.