Struggling expensive lender Amigo has been cleared of a £73million fine because it could not afford to pay it.
The Financial Conduct Authority said the company failed to conduct adequate affordability checks for borrowers, leaving many with little chance of being able to pay back their loans.
The mis-sale resulted in Amigo being faced with a huge compensation bill that nearly bankrupted the company.
The FCA said a fine would have caused Amigo “serious financial difficulties”.
So it publicly rebuked the company instead.
Amigo said it fully accepted “the lessons that had to be learned.”
The FCA said a fine would have hampered Amigo’s ability to pay out millions of pounds in compensation to customers under a High Court-approved settlement, although “the serious failings in this case justify a substantial financial penalty”.
“The size of the fine shows the sheer scale of the Amigo misselling,” said debt expert Sara Williams, who writes the Debt Camel blog.
She said the company made large, expensive loans to people in financial trouble with just a few checks. “It raises questions about how FCA has dealt with this – why has FCA regulators let Amigo customers down so badly?”
Other smaller guarantee lenders have had similar problems, meaning “the FCA should reconsider whether these loans are just too dangerous and should be banned,” she said.
Amigo offered loans to people with bad credit, charged them an interest rate of up to 49.9%, and let them use friends and family as guarantors for the loans.
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But it ended with thousands of complaints from borrowers who said the company missold them loans.
The FCA said that between November 2018 and March 2020, Amigo failed to establish adequate affordability assessment procedures for borrowers and those who acted as their guarantors.
This created a high risk of consumer harm, both for borrowers and guarantors, the FCA said.
“Amigo has failed to properly assess the affordability of its lending, particularly for vulnerable consumers,” said Mark Steward, FCA’s Executive Director for Enforcement and Market Supervision.
That meant guarantors were asked to step in and make payments to help distressed borrowers on one in four Amigo loans.
The watchdog said Amigo has effectively put its own commercial interests ahead of its obligation to comply with the rules and protect customers from bad loans.
It also said Amigo failed to keep adequate records, leaving it unable to provide satisfactory answers to questions.
The investigation was also hampered by Amigo’s negligent deletion of former employees’ email accounts.
The company halted lending in 2020 and claims for compensation totaling around £345million appeared to cripple the company until last year when it negotiated reduced compensation, which was approved by the High Court in May.
Amigo said the conclusion of FCA’s investigation is an “important milestone” for the company to secure its future.
“We fully accept the lessons we need to learn for the future and remain focused on building a business that delivers better outcomes for customers, backed by stronger lending,” said Danny Malone, Chief Executive of Amigo .
The company started lending again in October 2022 but is now looking for investors to inject a total of £45m of fresh cash into the company to allow it to continue lending.
Under the Scheme of Arrangement approved by the High Court, they have until May 26 to raise the cash or the deal goes through.
Amigo shares soared 25% on the news that they had avoided the fine but are still languishing at 3.27p, compared with the almost 300p level they were trading at five years ago.
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