The High Court approves Amigo Loans’ new business model

A High Court judge has accepted Amigo Loans’ proposed new business model, taking a crucial step towards the company’s resumption of lending.

Monday’s announcement marks a turnaround for the subprime lender, though it has yet to raise new capital and get approval from the Financial Conduct Authority.

Amigo, which offers loans based on someone else’s guarantee, halted lending in November 2020, citing uncertainty caused by the pandemic. Business has not resumed since then due to a dispute over compensation for historical mis-selling.

The company has faced complaints from consumers who have accused it of not checking whether their loans are affordable.

“A successful New Business Scheme will open the door to a new source of responsible, regulated finance for millions of people in this country who lack access to mainstream banking,” said Chief Executive Gary Jennison.

An earlier proposed scheme of arrangement by Amigo that would have capped compensation payouts to a greater extent was rejected by the FCA, who said it gave shareholders an unfair advantage over customers.

The new system offers more compensation, partly due to better-than-expected loan repayments in 2021.

Under the new scheme, Amigo will pay compensation of at least £112m provided it can resume lending within 9 months of program approval and complete a rights issue within 12 months of approval.

Over the past year, Amigo’s stock price has fallen more than 66 percent, despite a slight 6.6 percent gain since January.

The UK regulator has cracked down on so-called non-standard finance providers in recent years in response to concerns about rising consumer debt.

The number of active, high-cost, short-term lenders in the UK fell by almost a third between 2016 and the third quarter of 2020, according to FCA figures. During that time, Wonga, once the UK’s largest payday loan provider, filed for administration in 2018 after a spate of customer complaints.

Others, like subprime lender Provident Financial, have moved away from the services with the worst credit scores, leaving this group with a lack of options other than loan sharks and illegal moneylending.

In March, Provident Financial chief executive Malcolm Le May told the Financial Times that many of the borrowers classified as “high risk” are buying now, pay later, a form of interest-free online lending designed for retail purchases Tobe offered.

Jennison also warned that the UK is “sleepwalking into debt” because of “buy now pay later”.

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