FCA urged to act as lender to cap payments to poorest borrowers | Financial conduct authority
Consumer activists are urging the city’s government and regulator to intervene in a bailout proposed by venture lender Amigo, saying it could make the company’s directors richer while some of Grande’s poorest borrowers – Britain are missing up to £ 1 billion in compensation.
They appealed to Financial conduct authority (FCA) to block plans to limit repair payments to nearly one million current and former customers who have potentially been mis-sold by Amigo, which is the UK’s most criticized financial lender.
Consumers who successfully file a complaint with the financial ombudsman typically receive payments that leave them in the same financial situation as if they had not received the loan. This usually means a 100% repayment of the interest on the loan, plus an additional interest rate on these charges.
Amigo, however, has asked the courts to approve a “plan of arrangement” that would cap the amount it pays consumers. His own examples suggest that payments could be between 10% and 23% of the total loan value, but repayments could be much lower depending on the number of clients who file accepted claims.
The company says it will collapse into administration if the program is blocked.
The potential risk to consumers increases as other expensive lenders follow suit. Provident Financial’s consumer credit division said on Monday it would go to court request a similar agreement to that proposed by Amigo, allowing him to cap compensation at £ 50 million.
MoneySavingExpert founder Martin Lewis said the regulator must use its powers and stand up for consumers. “I would ask the FCA to step in, to ensure that a fair and proportionate balance of Amigo’s available money for repairs is returned to customers, who have often had their lives very difficult by being poorly sold, hideous , expensive over-loans.
Critics have also criticized the path for Amigo directors to hand them stock options that could be worth millions of pounds if the company’s stock price increases as expected assuming the ‘agreement be approved.
Five Amigo executives would receive long-term bonuses which, combined, would be worth at least £ 7.3million if the share price hits the target price of 40p per share in three years and remains at that level until ” at the time the bonuses are paid at the five-year mark:
CEO Gary Jennison: 9.5million shares (£ 3.8million at 40p)
CFO Mike Corcoran: 4.75million shares (£ 1.9million at 40p)
Chief Risk Officer Paul Dyer: 1.5 million shares (£ 600,000 at 40 pence)
Chief Transformation Officer Shaminder Rai: 1.5 million shares (£ 600,000 at 40 pence)
Director of Restructuring Nicholas Beal: 1 million shares (£ 400,000 at 40 pence)
Amigo shares are now worth 11.6 pence, which is 96% below their IPO price of 275 pence.
Labor MP Stella Creasy said if they allowed the deal to go through, the government and regulators “would set a precedent that it’s okay for a company to go bankrupt and not reimburse consumers, but make sure you that it takes care of its shareholders. and bonds ”.
“It is in a bad way when the reason they go bankrupt is that their business model is to exploit consumers,” she said, stressing that the government had to intervene urgently.
Amigo is the UK’s largest secured loan provider, using friends and family to secure loan repayment to people who might otherwise have trouble borrowing. Its loans typically have a rate of around 49.9% of APR and are repaid over several years.
There is growing concern that a new generation of lenders offering high-interest loans will fill the void left by Wonga, the payday lender who collapsed in 2018 under a multitude of compensation claims.
Quid fast and Peach are among several subprime lenders who have also collapsed in the past two years, leaving thousands of customers without recourse to full compensation for allegations they were mis-sold for loans they couldn’t get. to permit.
Amigo will go to court in a fortnight to try to persuade a judge that he should be allowed to continue as a regulated lender with his indemnification obligations capped at £ 35million, plus a 15% share of the profits at over the next four years, although it is weighed down by the claims that its founder, James Benamor, suggested it could be worth as much as £ 1 billion. Amigo also offers to reduce the balances of applicants who have still not repaid their loans.
After conservative estimates, which assumes that around 20% of former customers file claims under the program, could still result in a bill as high as £ 400million, according to Debt Camel blog author Sara Williams.
Amigo said he saw “no likely scenario” in which the potential level of claims could reach £ 1 billion, but declined to share his own estimates. “We do not recognize any estimates of claims liabilities made by third parties, which could only be based on speculation and could mislead our clients., ” Jennison said.
The Guardian understands that the FCA is preparing to tell the court it has reservations about the program, but it is not clear whether the regulator will submit a proposal to the court suggesting that the deal be rescinded.
CAF could also inform the judge that if the plan of arrangement is agreed, it is ready to continue to be his watchdog.
He stressed that his powers are limited and that he cannot unilaterally block the regime while it goes to court. He could, however, make a public statement condemning the program or provide more detailed information to clients about their options.
Mick McAteer, former FCA board member who now heads the Financial Inclusion Center, said the FCA “must remember that it is here to fight to protect consumers – especially vulnerable consumers like this – this”.
Jennison said the program was “absolutely” fair to borrowers. “We have to understand that there is no bottomless cash cow here,” he said.
He also supported bonuses paid to executives, saying it was difficult to recruit people without offering incentives linked to company performance. “If we get that level of payment, it will be because the business has been doing well, and then that will be aligned with paying customers more,” he said.
Williams said the borrowers were making the biggest sacrifice. “It’s not a simple ‘vote for it or you won’t get nothing.’ It’s a deceptive way to frame it.
“There are other ways to set up a program. For example, with a debt-for-stock swap, bondholders would make a financial contribution to the money available for repayments. But it’s not explained to customers, ”she said.
Amigo said all other options had been considered and that it was fanciful to suggest clients receive compensation in a way other than the arrangement scheme. “There is no prospect of bondholders financing a compensation fund. As we have made clear, if the program fails, Amigo will be referred for administration, ”Jennison said.
“Amigo customers participating in the program will enjoy 15% of the profits each year for the next four years, which is unprecedented for a legal process like this.”
The FCA and Treasury declined to comment.