UK lender to go to court with regulator over compensation

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Bournemouth-based Amigo Loans is said to have paid out more than £50m to former customers over the past two years, from people who have struggled to repay their loans due to affordability or employment. The average customer claim could be worth thousands of dollars, which includes the full loan amount, repayments, and 8% more interest.

In an attempt to clear the long list of outstanding claims, Amigo has presented a recovery plan worth £35m, to ‘avoid insolvency’ and with plans to recover and continue operations at the future.

However, despite the commitment of a large sum, some reputable customers may only receive 5% or 10% of the total amount of their claim – and the FCA disputes this – especially since Amigo also plans to offer huge bonuses to shareholders, estimated to be worth around £7m in aggregate in the near future.

The FCA’s letter to Amigo CEO Gary Jennison said: “The FCA remains concerned that relief creditors will see their claims significantly reduced while other stakeholders, such as shareholders, are not not invited to contribute their fair share to enable the company to remain solvent.

Dan Kettle, director of Pheabscommented: “Compensation claims are very tricky for lenders as a number of checks are made to determine customer eligibility, but the market also allows customers to claim in full if they cannot not pay them back.

“It puts lenders in a tricky position as to who they lend to and how their business can be sustainable in the future. The upcoming lawsuit for Amigo is very intriguing and should hopefully add more transparency in the industry, otherwise I don’t see how lenders can survive in the industry in the future.

Customers have been able to make claims on the grounds that they are struggling to repay their loans due to lack of income, affordability or limited checks on their guarantor. It is free to make a claim directly with the lender by submitting information which can be found on their individual website or via the CAF website. Many people have handled their claims through Claims Management Companies (CMCs) who often charge high fees to package the claim and send it to the lender.

The lender must respond to a claim within 6-8 weeks and decide whether to uphold the claim and pay in full, offer a partial claim or no claim at all. Some lenders were quick to offer settlement at a fraction of the overall value to find a quick fix. Those seeking full payment were able to complain through the Financial Ombudsman Service which can overrule any decision by a lender.

FCA compensation claims have hit UK lenders very hard in recent years, with breakdown giant Wonga.com reimbursing over £500m to former customers and over £100m repaid in total by The Money Shop and QuickQuid – then putting the three well-known companies into liquidation.

Amigo is seeking to avoid a similar fate, with legal proceedings taking place later this month.

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