Adios, Amigo? Sub-prime lender shares collapse in half after court blow
Subprime lender Amigo Loans has suffered a major blow after a High Court judge knocked down plans to cap compensation payments for historic complaints.
A High Court judge ruled in favour of the Financial Conduct Authority who argued that the scheme would place a “disproportionate burden on customers, as opposed to shareholders and bondholders.”
The ruling, handed down by High Court justice Robert Miles, rejected Amigo’s claim it would go into insolvency if the scheme was not approved.
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Amigo lends to individuals with poor credit who are able to find friends and families to guarantee their loans.
Though the ruling suggests the firm is well capitalised, shares in Amigo sank more than 54 per cent by the close of play today, last trading hands for 8.5p per share.
Less than two years ago they sold for around 160p per share
The regulator said this morning it “believes that Amigo can propose a fairer scheme to customers.
“It should also ensure that its customers are fairly represented and advised on alternative proposals for a scheme,” a statement read.
Concerns raised
The Financial Conduct Authority (FCA) had previously raised concerns about Amigo’s compensation scheme, including that customers stand to receive significantly less than the value of their claims, or the value they would typically receive through the Financial Ombudsman Service (FOS).
Customers who lodge successful claims with the FOS typically receive payouts that leave them in the same financial position that they started in, often meaning a 100 per cent refund, plus inflation.
But Amigo asked courts to approve a compensation scheme that would cap the amount paid out to customers, and by its own examples it payments could only be worth between 10 and 23 per cent of the value of the loan.
The ruling from Justice Miles reads “the scheme will probably not lead to the imminent insolvency of the Group; there is no evidence of any immediate (or even medium-term) liquidity crunch, and the directors will doubtless wish, if possible, to preserve the value of the enterprise for its various stakeholders.”
Amigo said this morning that “the Board is reviewing all options including an Appeal. A further update will be given in due course.”