Amigo, a struggling high-cost lender, was excused from paying a £73 million punishment because it was unable to do so.
According to the Financial Conduct Authority, the company did not properly assess customers’ ability to repay their loans. As a result, many of them had little prospect of doing so.
Amigo almost went out of business as a result of the mis-spelling, which resulted in a significant compensation payment.
A sanction, according to the FCA, would have put Amigo through “severe financial difficulty.”
Instead, it criticized the company in public.
“The lessons that needed to be learned,” according to Amigo, were totally acknowledged.
Massive scale
Even though “the major mistakes, in this case, warrant a large financial penalty,” the FCA said that punishment would have made it harder for Amigo to pay clients millions of pounds in compensation under a plan of arrangement approved by the High Court.
The enormity of the fine, said debt analyst Sara Williams, who runs the Debt Camel blog, “demonstrates the enormous extent of the Amigo mis-spelling.”
According to her, the company made little checks on huge, pricey loans given to borrowers in need of money. It begs the question of why FCA oversight so utterly failed the Amigo clients and how the FCA handled this.
The FCA should “reconsider whether these loans are just too risky and should be banned,” she added, adding that other smaller guarantor lenders have experienced the same issues.
People with bad credit histories may apply for loans from Amigo, which requires them to utilize friends and family as guarantors and charge interest rates as high as 49.9%.
However, thousands of complaints from consumers who claimed the business had missold them loans ultimately resulted.
According to the FCA, Amigo did not have adequate procedures in place between November 2018 and March 2020 to evaluate the affordability of borrowers and those who served as their guarantors.
According to the FCA, this increased the potential for consumer harm for both guarantors and borrowers.
Mark Steward, the FCA’s executive director of enforcement and market monitoring, said that Amigo “failed to look into how affordable its loans were, especially for people who were vulnerable.”
That meant that one in every four of Amigo’s loans required guarantors to step in and make payments to help struggling customers.
According to the watchdog, Amigo effectively put its own business interests ahead of its responsibility to follow the law and protect customers from excessive loans.
Additionally, it said that Amigo kept insufficient records, making it unable to respond to inquiries in a satisfactory manner.
Amigo’s careless deletion of the former staff members’ email accounts additionally complicated the investigation.
Important turning point
The company stopped lending in 2020, and £345 million in compensation claims threatened to bankrupt the company until it reached a settlement last year that was accepted by the High Court in May.
Amigo stated that as the business works to guarantee its future, the conclusion of the FCA’s probe marked a “significant milestone.”
Danny Malone, chief executive of Amigo, said, “We fully embrace the lessons that needed to be learnt for the future and our emphasis remains on developing a business that offers better outcomes for clients, backed by stronger lending.”
In order to continue lending, it is looking for investors to inject £45 million in new capital into the company. It resumed lending in October 2022.
The business must raise the money by May 26 in accordance with the High Court-approved scheme of the arrangement, or it will be shut down.
The news that Amigo had avoided the charge sent its shares up 25%, but they are still trading at a low price of 3.27p compared to where they were trading at nearly 300p five years ago.
