A High Court judge has accepted Amigo Loans’ proposed new business scheme in a crucial step towards the company resuming lending.
The announcement on Monday marks a turnround for the subprime lender, although it still has to raise new capital and receive permission from the Financial Conduct Authority.
Amigo, which offers loans on the basis of a guarantee from another person, stopped lending in November 2020, citing uncertainty caused by the pandemic. It has been unable to resume business since because of a dispute over compensation for historic mis-selling.
The company has faced complaints from consumers who accused it of failing to check whether their loans were affordable.
“A successful New Business Scheme will open the door to a fresh source of responsible, regulated finance for millions of people in this country who don’t have access to mainstream banking,” said chief executive Gary Jennison.
A previous “scheme of arrangement” proposed by Amigo that would have limited compensation payouts to a greater extent was rejected by the FCA, which said that it unfairly benefited shareholders over customers.
The new scheme offers more compensation, partly because of better than expected loan repayments during 2021.
Under the new scheme, Amigo will pay compensation of at least £112mn provided that it can restart lending within 9 months of the scheme being approved and that it can complete a rights issue within 12 months of approval.
Over the past year, Amigo’s share price has fallen by more than 66 per cent despite a modest rise of 6.6 per cent since January.
The UK regulator has clamped down on so-called non-standard finance providers in recent years in response to worries 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 this time Wonga, once the UK’s largest payday loan provider, filed for administration in 2018 after a surge of customer complaints.
Others, such as subprime lender Provident Financial, have moved away from serving those 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 those deemed “high risk” for credit were turning to buy now pay later, a form of online interest free credit offered for retail purchases.
Jennison also warned that the UK was “sleepwalking into debt” as a result of buy now pay later.
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