Amigo Loans plan to protect its survival has been approved by the Supreme Court

Britain’s largest underwriters lender Amigo Loans has been given the green light by the High Court to move forward with a scheme designed to reduce the cost of compensation for wrongly sold loans.

As many as one million current and former borrowers who potentially made unsustainable loans as long ago as 2005 will now have until May 12 to vote on proposals that would see borrowers receive less than 10 percent of their due and allow the lender to decide whether The loans were ill sold.

Borrowers with an existing loan will be able to reduce their balance and release their guarantors if their claim is upheld.

Amigo Loans – founded by James Pennamore – has been given the go-ahead by the Supreme Court to move forward with a scheme that would cap compensation payments for missold borrowers

The subprime mortgage lender, which charges 49.9 percent APR, has consistently told borrowers that its proposed plan is the only way claimants will receive any compensation for the mis-sold loan.

On the claim website, where borrowers can now vote, he said: ‘In simple words, if you wish to receive a refund on your claim, it is imperative that you support the scheme by voting for it.

If enough customers don’t vote for the plan, it won’t go forward and Amigo will go into bankruptcy. This means that customers who have a valid compensation claim will not receive a refund for their complaint.

It told the London Stock Exchange on Wednesday that the FCA did not support the scheme but “is not currently proposing any further regulatory action that might stop the scheme if creditors approve it and the court sanctiones it”.

She added that the regulator had concerns about the fact that missold borrowers would receive significantly less than the value of their claim and about the “methodology for evaluating claims”.

Its share price rose from 12.82p to just under 16p on the news, and the price jumped to 17.76p Wednesday morning after the scheme was approved by the Supreme Court.

A letter sent by the Financial Conduct Authority (FCA) to the lender and court last Tuesday and published this morning also expressed concern that bondholders and shareholders would not be harmed by the plan.

In fact, five of Amigo’s directors could get up to £7.3m in bonuses if the company’s share price recovers.

Shadow Chancellor Pat Macfadyen and Tory chair of Parliament’s Treasury Select Committee, Mel Stride, also raised concerns about the implications of the plan.

“Obviously, any situation where managers might receive bonuses on the basis of reducing fair and reasonable compensation to consumers would be a major concern,” Mel Strayed told the Guardian.

Conservative MP Mel Stride and Labour's Shadow Chancellor Pat Macfadyen raised concerns about the Amigo loan scheme

Conservative MP Mel Stride and Labour’s Shadow Chancellor Pat Macfadyen raised concerns about the Amigo loan scheme

Amigo told the Supreme Court that the shareholder rights case for the capital increase was unlikely to succeed.

The lender, which requires family and friends to act as guarantors for borrowers for its high-cost loans, is mired in financial peril as it struggles with a growing number of complaints about loans being missold.

It was the most complained about financial company in the second half of 2020, according to the Financial Ombudsman Service, with arrest FOS rising from 317 to 12,854 in a year.

This represents nearly 10 percent of all complaints submitted to the Ombudsman between July and December, while another 2,790 complaints were received in the first two months of 2021.

Number of new financial ombudsman complaints about Amigo loans
period of six months The number of new complaints
First half of 2016 53
H2 2016 69
H1 2017 74
H2 2017 80
First half of 2018 117
H2 2018 231
First half of 2019 266
H2 2019 317
First half 2020 1163
H2 2020 12854
Source: Financial Ombudsman Service

There were 15,052 open cases at the end of February, while just over 1,000 resolved cases were upheld in the second half of last year, at an 88 per cent rate.

Amigo said it could not continue to pay compensation claims in full to missold borrowers at the rate at which the FOS upheld the complaints.

The FSA said seven out of 10 of the cases opened at the end of February were brought by outside firms such as claims management firms, which are looking for a new payday after the payment protection train ended in 2019.

The cost of handling complaints rose from £26.6m to £116m in the nine months to the end of 2020, according to Amigo’s latest calculations, helping the lender to lose £81.3m before tax.

Amigo Loans made a pre-tax loss of £81.3m in the nine months to the end of 2020 after it had to set aside £150.9m to cover complaints - an increase of 707% on the previous year

Amigo Loans made a pre-tax loss of £81.3m in the nine months to the end of 2020 after it had to set aside £150.9m to cover complaints – an increase of 707% on the previous year

But the Supreme Court’s approval brings Amigo one step closer to its ability to relieve pressure on its balance sheet, as the plan is now slated to be voted on by about 1 million former and current borrowers before being reviewed again by the courts on May 19. .

If approved, the scheme could start in mid-May with payments starting in 2022.

The regulator also said in its letter that Amigo made no attempt to “explain comprehensively to customers in the scheme’s documentation the approach the company actually takes to adjudicate their claims,” ​​effectively requiring Amigo’s creditors to vote blindly on the scheme.

Clearly, any situation in which directors might receive remuneration on the basis of a reduction in fair and reasonable compensation to consumers would be a matter of great concern.

Mel Stride, Chairman, Treasury Committee

However, the lender said the letter was pre-dated for judge approval and has prepared a wide range of explainer videos to give customers the information they need to understand the scheme.

She wanted to make the legal language as accessible as possible.

The scheme is to be funded at a minimum of £15m, with the potential to add up to £20m plus 15 per cent of pre-tax profits over the next four years.

With Amigo setting aside £150.9m to cover complaints in the last nine months of 2020, Sarah Williams, a debt counselor who runs the Debt Camel blog, previously suggested to This is Money that borrowers ‘may get very little compensation’ through the scheme. .

“In the proposed scheme, the balances of 150,000 existing customers would be reduced if their claim was upheld — just as they would be if Amigo went into administration,” she said.

Amigo says these balance cuts will cost it around £85m. The £15m that Amigo is offering to recover 700,000 borrowers and guarantors with repaid loans will offer small refunds, well under 10 per cent.

It could be as little as 5 percent, she said, and described the proposal for a loss-making lender to add 15 percent of its earnings over the next four years as “a jam in a few years, or maybe none at all.”

Amigo CEO Gary Jenison said: “We are pleased that the court agreed that the plan should move forward.

We look forward to our customers having the opportunity to vote and support the scheme, which we believe is the only real option for deserving customers to receive monetary compensation.

Since it is in their best interest and the real alternative is bankruptcy, we strongly encourage our 700,000 former customers and 300,000 current customers to vote their money and support the system.

“Our customers will have the full information they need to understand exactly what the system means to them, including details of a dedicated phone number and email address to help answer any questions.”

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