Ombudsman Complaints: Guarantor Loans Replace PPI

Thousands of Britons have been complaining to the Financial Ombudsman Service about the mis-selling of unaffordable secured loans, new figures have revealed, with Payment Protection insurance finally being abolished as the most complained-about financial product.

The number of complaints about the PPI came in at 6,679, which means it wasn’t the most complaints about a product in a three-month period for the first time since 2007, FOS data shows.

He notes that Britain’s biggest financial selling scandal is about to come to an end, past the August 2019 deadline for submitting original complaints to banks and other financial firms.

Complaints about secured lenders such as Amigo Loans?

Complaints about secured lenders such as Amigo Loans?

But the latest figures from the Ombudsman indicate that someone else will take his place.

And there were 10,321 complaints about guarantor loans, or 14 percent of all complaints filed, in the last three months of last year, an increase of 3,300 percent from about 300 in the same period in 2019.

Almost all of those complaints, FOS said, were about unaffordable lending, or other affordability issues. She said she found in many cases that not enough checks were made to determine whether a borrower could afford a loan before it was approved.

Separate figures published by the Ombudsman also revealed complaints about Britain’s largest underwriting lender, Amigo Loans, jumping from 317 in the second half of 2019 to 12,854 in the same period last year.

That made it the most complainant of financial firms, ahead of Provident Financial with 10,000 and Barclays, one of Britain’s largest banks, with 8,300.

Aimed at less creditworthy borrowers, secured loans offered by the likes of Amigo are guaranteed by family members or friends who agree to repay the loan if the borrower cannot charge interest rates of up to 50 percent.

The Ombudsman said about nine out of 10 complaints came from borrowers, not guarantors.

For more than a decade, the Financial Ombudsman Service has received an unprecedented number of complaints about PPI. We’re now seeing thousands more complaints about credit, said a This is Money spokesperson.

Anthony Morrow, co-founder of online financial advisor Open Money, said of the figures: ‘The numbers show that people turned down by mainstream lenders and forced to seek alternative forms of debt are still getting the raw end of the deal.

The FCA has clamped down on payday lenders, but the explosive growth in complaints about guarantor loans suggests that this is the new way for unscrupulous loan companies to prey on the financially vulnerable who need access to extra cash quickly.

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

In one case from last December, Amigo was found to have erred in selling one of its customers three loans after the Ombudsman found it unaffordable.

‘Miss E’ took out four loans totaling £12,250 over the 26 months she said she could not afford, including twice taking out new loans to clear previous balances.

Although the ombudsman found that Amigo had done due diligence on the first loan, it said the other three were unaffordable and that they were outstanding compensation and interest and the fourth and final loan should be removed from her credit file.

The Dec. 8 decision was said to be a “typical complaint,” while nearly 9 out of 10 complaints against Amigo were upheld by the FOS in the second half of last year, according to the latest figures. Just over 1,000 cases have been resolved.

Morrow added, “While they can seem like a good idea for those who are struggling to get credit, guarantor loans can be a very expensive way to borrow money. If you’ve been denied a standard personal loan because of affordability issues or a bad credit history, taking out debt with a high interest rate can make existing problems worse.

A borrower from Amigo Loans, 'Miss E', has been found to have been wrongly sold 3 out of 4 loans made by the lender, with a total value of £9,750

A borrower from Amigo Loans, ‘Miss E’, has been found to have been wrongly sold 3 out of 4 loans made by the lender, with a total value of £9,750

An alternative way to borrow up to £3,000 may be to seek help from a credit union. They tend to lend to a wider range of people than regular lenders, charge lower interest rates, and often offer money management support to help improve your credit rating.

The 12,854 new complaints against Amigo in the second half of last year made up 10 percent of all complaints submitted to the Ombudsman, while the rate it found in favor of the complainants was nearly three times the average approval rate of 30 percent.

Others complained about the surety lenders including Bamboo and George Banko who received 402 and 169 complaints respectively, while the FSA upheld a smaller percentage of the complaints.

With Amigo complaints up from 317 in the second half of 2019 and 1,163 in the first six months of 2020, this is the latest bad news for the increasingly beleaguered lender.

It is not enough for people to go to FOS, the government must urgently step in and cap the cost of all forms of consumer credit and protection they need.

Britain’s largest provider of collateralized loans, once described as a ‘legal loan fish’ by Labor MP Stella Creasy, revealed last June that the Financial Conduct Authority was investigating the matter over its lending practices.

The investigation covered lending Amigo from November 2018 onwards, when new rules designed to protect borrowers from ‘unaffordable lending’ went into effect.

“Each week brings more evidence of credit companies taking advantage of hard-pressed Brits who are struggling to afford the pandemic,” said Stella Creasy.

“It is not enough for people to go to FOS, the government must urgently step in and cap the cost of all forms of credit to consumers and the protection they need.”

Meanwhile, mounting complaints against the company saw the company set aside millions of pounds to deal with a backlog and launch an ‘arrangement scheme’ in January covering around a million current and former borrowers and guarantors who may have long missold unsustainable loans. Like 2005.

The scheme, which if approved would be funded with a pot of at least £15m, was proposed as Amigo admitted to its borrowers that it did not have enough money to pay all compensation claims in full.

It said an additional £20m could be added to the pot plus 15 per cent of the pre-tax profits made over the next four years.

Its latest accounts revealed a pre-tax loss of £81.3m in the nine months to the end of December 2020, after the cost of handling complaints rose from £26.6m to £116m.

The scheme as proposed will go to court at the end of March to determine if it is fair, then be voted on by creditors and go to court again for a second hearing. If approved, the scheme could start in mid-May and payments could begin in 2022.

The lender told the borrowers that they would be better off with the plan, and that voting him out would likely see the company go bankrupt.

But Britain’s financial regulator refused to give it the go-ahead, while Sarah Williams, a debt counselor who runs the Debt Camel blog, suggested eligible borrowers “may get very little compensation” through the scheme.

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

“In the proposed scheme, 150,000 existing customers would have their balances reduced if their claims were upheld – just as if Amigo went into administration,” she said.

Amigo says these balance cuts will cost it around £85m. So the £15m that Amigo is offering to recover 700,000 borrowers and guarantors with repaid loans will offer small refunds, well below 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 received a high level of complaints in 2020, which is why we launched the ranking chart in January,” Amigo Loans said in a statement.

“We are a new leadership team who desire to right the wrongs of the past in a way that is fair and equitable for all of our customers – including our 700,000 former borrowers and guarantors.”

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