Loan company Amigo warns it could collapse – what it could mean for you
GUARANTOR lender Amigo has warned its future is "under threat" as it faces a £345million bill to pay compensation to its customers.
Amigo, which lends to people with people with poor credit scores and whose loans are backed by friends and family, is facing coughing up massive payouts over mis-selling loans to customers.
It revealed in its latest financial results that it also made a loss before tax of nearly £284million for the year ending March 31, 2021 due to the cost of these complaints.
Experts have warned that should Amigo collapse, customers will find it much harder to claim a payout - and there may not be enough cash to pay the compensation.
It was first revealed in June last year that the high cost credit lender was being investigated by the city watchdog over concerns it may have lent to people who couldn't afford to repay loans.
The Financial Conduct Authority looked into whether Amigo's creditworthiness assessment process, and the governance of this, met industry rules.
Nearly one million Amigo customers could be due money - but the company put forward a rescue plan to the High Court proposing to cap payouts and to put aside a limited pot of cash for customers.
However, the plan was rejected by the High Court in May, as the ruling judge said that "there is no evidence of any immediate liquidity crunch”.
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But Amigo has said if it cannot reach an agreement with the FCA and High Court over how to repay customers, it is likely to go bust.
Amigo chief executive Gary Jennison said: "The serious challenges we have faced from the high level of complaints received around historical lending primarily between 2016 and 2019, as reflected in today’s results, have left the business with a significant liability for compensation payments and put our future under threat."
An FCA spokesperson said: “We continue to engage with the firm on next steps since the court decided not to sanction the firm’s proposed scheme of arrangement in May this year.
"Our objective is to ensure that consumers get the best possible outcome in the circumstances.”
Amigo Loans was founded in 2005 and offers loans of up to £10,000 over 12 to 60 months at an interest rate of 49.9% to borrowers who are typically turned away from traditional lenders.
The lender will supply loans to those with poor credit histories as long as a friend or family member agrees to make repayments if they can't.
What could happen if Amigo goes bust?
If the firm goes bust, there may not be enough cash left to pay compensation to customers.
Money.co.uk senior personal finance editor James Andrews said while it's "little surprise" that Amigo is facing mega losses, customers should "know where they stand" if it goes under.
He said: "If the company collapses it becomes far harder to claim, as Wonga customers discovered back in 2018."
Wonga went under back in 2018, owing hundreds of pounds in compensation to tens of thousands of customers who had been mis-sold loans.
But customers were complaining as late as 2020 that they still hadn't received their cash.
Moneyfacts finance expert Eleanor Williams said that you will still have to pay your loan even if Amigo goes bust.
This is because overdue loans are usually sold onto other companies - who will then take your repayments.
"Consumers should not assume that should a loan company collapse that that they’re ‘off the hook’ and their debt would then be forgotten," she said.
"In order to protect their credit score, it is important to continue making their monthly repayments and meeting that commitment, even if they do not receive any updates from their provider".
Mr Andrews added that Amigo customers should take a look at their contracts should Amigo go under.
"If you’re currently paying off an Amigo loan, the first thing you need to do is find this clause in your contract and check that the terms aren’t set to change in the event of a collapse," Mr Andrews said.
If it’s not clear, you can go to charities or services like for free impartial advice, he added.
You can also use Money.co.uk's if you need to double check how much you need to pay back on your loan.
Can I still make a claim?
You can still make a claim if you believe you were mis-sold a loan by Amigo.
Mr Andrews said you can write to the Financial Ombudsman, or take the company to court.
"However, even if you think your case for compensation is strong, there’s no guarantee of success.
"What’s more, even in the event of a win, the amount you receive in compensation might even be less than the cost of your legal fees."
Even if you've paid off your debts you may still be able to get a refund if you struggled to repay the money at the time.
Complaints over unaffordable guarantor loans have overtaken PPI as the most complained about financial product.
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The ombudsman received 10,000 complaints in the last three months of 2020 alone, up from 303 new cases on the year before, many of which were about Amigo Loans following an investigation by the watchdog.
In March last year, the founder of Amigo claimed customers were given "irresponsible" loans in explosive blog post.