Amigo Loans Ltd, who provides guarantor loans to consumers who may struggle to get loans from traditional lenders, has been publicly censured by the FCA for failing to conduct sufficient checks on borrowers and guarantors.

The FCA found that between November 1, 2018 and March 31, 2020, Amigo failed to have appropriate processes in place to properly check borrowers and guarantors before approving a loan. These failures led to a high risk of consumer harm, both to borrowers and guarantors.

“Amigo failed to assess properly the affordability of its lending, especially to vulnerable consumers, as our rules required. 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,” said Mark Steward, Executive Director of Enforcement and Market Oversight, FCA.

One in four needed guarantor help

The FCA’s investigation found that Amigo’s assessment of whether a customer could afford to borrow was inadequate on multiple levels.

Firstly its lending decisions relied heavily on IT system with a high degree of automation that had design issues and insufficient controls. Even if the system raised flags for manual reviews, most loans were approved without checking the provided customer information.

“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.”

Mark Steward, Executive Director of Enforcement and Market Oversight, FCA

These issues became worse after Amigo failed to “adequately consider regulatory requirements around affordability and act sufficiently on the findings of a number of internal and external reviews, which identified weaknesses in its approach to the assessment of affordability and creditworthiness”.

With these failings, it was discovered that one in four borrowers needed assistance from their guarantors to make payments.

Furthermore, the FCA also found that Amigo had failed to maintain sufficient records of its historic business processes, and had negligently deleted email accounts of former staff members, hampering the FCA’s investigation.

Redress scheme

For these types of failings, the FCA would normally have imposed a £72,900,000 ($88,744,782) fine. But Amigo has demonstrated that this would cause “serious financial hardship” to the company. The fine would also have threatened Amigo’s ability to pay out redress to customers, which was approved on May 23, 2022 by the High Court. The redress scheme is in relation to customers who were mis-sold loans and raised a claim by November 26, 2022.

“The firm proposed a scheme of arrangement as Amigo could not afford the sizable 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,” said Mark Steward.