Wronged Amigo Borrowers in Line for Compensation as High Court Approves Redress Scheme

The High Court has approved a plan by guarantor lender Amigo to set aside £112 million for compensating customers mis-sold loans, taking wronged borrowers one step closer to receiving redress and the firm closer to resuming lending.

The High Court ruling, handed down Monday, comes just days after more than 145,000 Amigo customers voted in favour of the firm’s “scheme of arrangement” for handling complaints. Under the scheme, wronged borrowers will receive an estimated 41p of every £1 they’re owed and Amigo will continue operating.

Amigo lends to consumers whose poor credit scores lock them out of credit cards and personal loans, with the loans guaranteed by the borrower's family members or friends. But like other high-cost, subprime lenders before it, Amigo has faced criticism, and a deluge of complaints, for selling customers loans without properly assessing their finances.

When the complaints are upheld, Amigo must refund the interest and fees customers have paid or update the outstanding balance on the loan. The firm has warned that this compensation bill - estimated at £345 million - could topple it. 

Amigo suspended lending in November 2020, citing the upheaval caused by the pandemic. But under investigation by the FCA over its assessment of customers' creditworthiness, its governance, and the high volume of complaints, Amigo hasn’t been permitted to resume issuing loans.

In 2020, the firm proposed a scheme of arrangement that would limit redress payments to £35 million and 15% of profits over the next five years. However, in May of last year, the High Court blocked the deal following objections from the Financial Conduct Authority (FCA). The regulator argued that the settlement would have favoured shareholders over borrowers, who would have received just 5 to 10p for every £1 they were owed in redress.

Amigo returned with two proposed redress schemes in December 2021. The first option was a “new business” scheme, Amigo’s preferred option because it would enable it to continue trading. Under those plans, claimants would receive an estimated 41p for every £1 they’re owed in compensation. Meanwhile, Amigo would continue lending if it met certain conditions.

In the other option, a “wind-down” scheme, Amigo would be shuttered and claimants would receive 29p out of every £1 owed in redress.

Earlier this month, 145,000 customers voted in favour of the first option. Now the High Court has given it its seal of approval.

Amigo now intends to pay wronged borrowers out of a compensation pot of at least £112 million. However, this is conditional on the company being permitted by the FCA to resume lending within nine months of the scheme being approved. Amigo will also need to raise £70 million within 12 months of the scheme's approval. 

The FCA said in a statement following the ruling: “We objected to Amigo’s previous scheme because we believed that a fairer compromise could have been offered to customers. The FCA has, through its continued engagement with Amigo since the previous court hearing, sought to get a better, fairer deal for those customers due redress.

“We will continue to monitor Amigo closely as it launches the scheme and seeks to meet the conditions for it to resume lending. Our investigation into the firm is on-going.”

Sources