High-cost lender Amigo Loans will press ahead with a rescue plan to cap compensation payments for nearly 1 million customers after the high court rejected concerns the proposed scheme would unfairly harm them.
Amigo, which is giving board directors the chance to earn £7m in long-term bonuses as part of the deal, said it welcomed the court decision, which would allow a meeting with creditors on 12 May to go ahead as planned followed by a vote of all customers.
The controversial deal was not opposed by the regulator, the Financial Conduct Authority, despite concerns that mis-sold customers could receive little more than 5% of a successful claim after Amigo capped its compensation pool at a maximum £35m and 15% of profits over the next four years.
At the weekend, shadow City minister, Pat McFadden, and the head of the all-party Treasury select committee, Mel Stride, said the FCA had questions to answer about how it was regulating firms such as Amigo, and whether it was fulfilling its obligation to protect consumers.
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Amigo, which was founded in 2005, but came to prominence following the demise of sub-prime rival Wonga in 2018, was deluged with mis-selling claims last year after customers accused the firm of failing to carry out basic financial checks.
The financial ombudsman service has found in customers’ favour in 88% of the approximately 1,100 cases that went to a full review and is owed £10m by Amigo as a creditor.
McFadden warned that other high-cost lenders may exploit the FCA’s decision to pull back from telling the court it would not regulate the lender even if the court approves the deal.
“If Amigo manages to avoid redress payments through this mechanism, there’s a risk it will set a precedent for other companies in a similar position,” McFadden said. “And of course people will be appalled if ordinary borrowers are short-changed, while those at the top of the company receive large payments.”
The consumer credit division of doorstep lender Provident Financial has already proposed a deal similar to Amigo’s, and other high-cost lenders struggling to keep up with compensation claims could follow suit.
The court heard that the FCA did not support the scheme, but “it was not currently planning to take any further action”. Since it became known last week that the FCA would not oppose the deal, the company’s share price has risen 50% to 16p.
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Amigo has warned that unless creditors and customers agree to the rescue, it will file for administration and its significant liabilities will rule out any mis-selling payments being made.
The court heard that Amigo would assess claims using an algorithm and those that were rejected would go through a further review. It was estimated that compensation would be 10% of average claims, the court was told.
Gary Jennison, the chief executive of Amigo, said: “We are delighted that the court agreed that the scheme should go ahead. We look forward to our customers having an opportunity to vote and support the scheme, which we believe is the only real option for customers who are due redress to receive cash compensation.
“Given it is in their best interests and the real alternative is an insolvency, we strongly encourage our 700,000 past customers and 300,000 present customers to vote for their money and support the scheme.”
