The sub-prime lender Amigo has dodged a £73m fine despite having put consumers at a “high risk” of harm, amid fears that the financial penalty could have led to its collapse.
The Financial Conduct Authority (FCA) investigation found Amigo put business interests ahead of its customers’, by failing to assess properly whether customers, or their guarantors, could afford to repay loans they applied for – noting faults in both its automated tech and human oversight between November 2018 and March 2020.
There was an increased risk that guarantors, who were often friends and family members, would have to step in to cover the loan when borrowers failed to repay. The FCA estimated that one in four guarantors were forced to make payments on loans issued during that period as a result of Amigo’s failings.
“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, the FCA’s director of enforcement, said.
The watchdog planned to fine Amigo £72.9m but waived the penalty after Amigo showed it would have caused “serious financial hardship” for the company, and threaten its ability to fulfil an already slimmed-down compensation scheme that is offering about 41p for every pound owed to mistreated customers.
Amigo – which charged 49.9% interest and required borrowers to provide a friend or family member to act as a guarantor – has continued to warn that it is on the brink of insolvency, despite restarting lending under a pilot scheme in October.
It is now hunting for investors to inject £45m into the business, which would allow it to keep lending, by the end of May. Without that funding, bosses plan to wind up the business.
The FCA investigation detailed numerous shortfalls in Amigo’s operations. It found that the company relied heavily on highly automated IT systems, which had design issues and insufficient controls in place, meaning it processed applications that should have been denied on the basis that customers could not afford the loans.
However, even when the system raised alerts and called for human oversight, staff often failed to do proper checks or investigate further before approving the loans, the FCA said.
Amigo also failed to “adequately consider regulatory requirements” around affordability of the loans it issued, or take action to improve its operations despite a number of internal and external reviews identifying “weaknesses” in its approach to creditworthiness and affordability.
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Commenting on the breaches, Amigo’s chief executive, Danny Malone, said: “I would like to apologise again to any customers impacted for the past failings in lending practices that occurred during the period 2018-2020.
“As a new board and management team, we fully accept the lessons that needed to be learned for the future and our focus remains on rebuilding a business that delivers better outcomes for customers, backed by stronger lending controls and a better culture.
“The conclusion of this investigation enables us to draw a line under these historic lending issues as we seek to secure the capital required for the future.”