Subprime lender Amigo has announced that they will not be offering new loans until at least next year as they deal with an avalanche of customer complaints.
The lender had originally paused lending after the Coronavirus crisis and has been struggling to deal with the volume of complaints they’ve been receiving.
Amigo received 25,571 complaints from customers about a range of various issues and had been instructed by the Financial Conduct Authority (FCA) to deal with them within 8 weeks, taking them to 30th October 2020. The lender said it had reviewed all the complaints but was yet to issue a final response to 2,517 customers.
Of those that are yet to receive a response, 2,209 relate to complaints where significant guarantor payments on a loan have been made. Amigo is the largest provider in the UK of guarantor loans and uses friends and family to guarantee repayments on loans to people who are unable to borrow from traditional lenders due to their credit history.
The lender, which was founded in 2005, had claimed to have turned a corner in dealing with the complaints however admitted that the number had remained at a high level for much longer than expected. The company saw the number surge, particularly with those that were coming through claims management companies, which has led to its provision for complaints being increased from £116.4 million to more than £150 million.
Amigo paid out £47 million in compensation to customers in the three months to September, made up of 60% cash and the remainder through loan balance adjustments.
It’s not just the influx of complaints that Amigo are having to deal with either. The FCA is also investigating how the firm has been assessing customers’ creditworthiness.
Amigo offers guarantor loans at an annual interest rate of 49.9% and the lending watchdog is investigating if Amigo failed to properly assess if customers could afford the loans they were taking out.
The Coronavirus pandemic has had a huge impact on the lender after they stopped offering loans to all customers except key workers during the outbreak. They also extended payment holidays for 47,000 of their 199,000 customers. Amigo saw profits fall as a result of this, hitting £3 million in the first quarter, down from £18.1 million for the same period last year.
Despite keeping lending open for key workers, the challenges of a second lockdown has made it trickier, so the firm has decided to instead focus on collecting money due and handling complaints before returning to lending next year.
Gary Jennison, Chief Executive of Amigo since September said, “We will be back lending to our customers that need to access an Amigo loan as soon as we can, but do not envisage this being before 2021.”
It’s thought that around 90% has been wiped off the firm’s stock market value since the start of 2020 and Amigo has also been embroiled in public dispute with founder James Benamor after his plans to return to the company were thwarted by shareholders who voted against his proposals in September.