Court rejects rescue plan for subprime lender Amigo

A rescue plan from subprime lender Amigo that would have cut compensation payouts to customers for mis-selling loans, has been rejected by the British high court, sending the company's shares plunging more than 50 per cent on Tuesday.

Britain's regulator, the Financial Conduct Authority (FCA), which opposed the scheme in court, said it thought Amigo could propose a fairer deal for customers.

Amigo specialises in guarantor loans, providing finance to customers with poor credit histories if they are guaranteed by a friend or family member.

It entered the Irish market in early 2019, offering loans of between €500 and €5,000 over periods of one to three years at an annual interest rate of 49.9 per cent. The company is pitched at people who have been turned down by traditional lenders.

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The Dublin office was the listed moneylender’s first outside the UK and was seen at the time as the first step in a wider international expansion. The company paused all Irish lending last November.

Subprime lenders in Britain, where Amigo has more than 200,000 customers, have been hit by a regulatory clampdown in recent years that has led to a wave of claims, and in some cases compensation payouts, for mis-selling loans. The effect of the Covid-19 pandemic has added to the strain.

Amigo's rival, Provident Financial, quit its around 140 year old doorstep lending business earlier this month.

Cap payouts

Amigo had applied to the high court for permission to cap payouts, saying a surge in claims threatened it with collapse.

Amigo’s shares tumbled as much as 61 per cent in early trading.

The lender said its board was reviewing all options including an appeal after the court’s decision.

The FCA said other finance firms should take account of the judgment, adding it had “significant concerns” about schemes being used to unfairly avoid paying customer redress.

Amigo’s plan had drawn criticism from politicians and consumer groups.

Around 95 per cent of votes cast by current and former Amigo customers ahead of the court hearing were in favour of the proposal.

The court said in its judgment it agreed with the FCA that Amigo did not face an imminent liquidity crunch and urged the company to propose a fairer scheme that spread losses with shareholders.

The court said customers lacked the necessary information or experience to assess potential alternative options when voting on the scheme. – Reuters