Amigo Loans has been publicly censured by the Financial Conduct Authority (FCA) for failing to conduct adequate affordability checks on borrowers and guarantors.

The FCA would have imposed a fine of £72.9m, although Amigo stated that this would have caused the firm serious financial hardship.

A fine would also have threatened Amigo’s ability to meet its commitments to a high court-sanctioned scheme of arrangement, which aims to pay redress to customers.

Amigo provides guarantor loans aimed at consumers who may be unable to access finance from traditional lenders, due to their circumstances or credit history.

Guarantor lending means the person applying for the loan is required to have another person, typically a family member or friend, guarantee that if the borrower is unable to make a repayment for the loan, the guarantor will make that payment on the borrower’s behalf. Both borrowers and guarantors needed to pass Amigo’s affordability checks for a loan to be approved.

Between November 2018 and March 2020, however, the FCA found that Amigo did not have appropriate processes in place to adequately assess borrower and guarantor circumstances before approving a loan. Amigo’s failures led to “a high risk of consumer harm”, the regulator said, both to borrowers and guarantors.

“Amigo failed to assess properly the affordability of its lending, especially to vulnerable consumers, as our rules required,” commented executive director of enforcement and market oversight at the FCA, Mark Steward.

“This led to lending that was unaffordable for some and meant guarantors had to step in. It also had the effect of prioritising the firm’s commercial interests over the obligation to comply with the rules and safeguard customers from unaffordable loans.”

According to the FCA, the firm’s failings meant there was an increased risk that guarantors would have to step in. The regulator found that one in four of Amigo’s guarantors were asked to step in and make payments to assist struggling borrowers at some point during the term of the loan.

The investigation also found that Amigo had failed to maintain adequate records of its historic business processes. As a result, the FCA found it was unable to provide adequate responses to its questions throughout the investigation.

Steward added: “The firm proposed a scheme of arrangement as Amigo could not afford the sizeable redress bill in full.

“Following intervention by the FCA, the scheme was ultimately approved by the creditors, including the affected customers, and by the court. The scheme aims to ensure an amount of redress is paid to affected customers that is better for customers, in these parlous circumstances, than any other likely outcome.”

Share Story: