(Alliance News) - Amigo Holdings PLC on Tuesday thanked the UK Financial Conduct Authority for publicly consuring Amigo Loans Ltd for failing to conduct adequate affordability checks on borrowers and guarantors.

Shares in the company were up 34% to 3.52 pence each in London on Tuesday morning.

The FCA said it would have imposed a GBP72.9 million fine, however Amigo demonstrated that this would cause it serious financial hardship. "A fine would also have threatened Amigo's ability to meet its commitments to a High Court-sanctioned scheme of arrangement, which aims to pay redress to customers," the FCA explained.

The financial regulator added that between November 1, 2018, and March 31, 2020, Amigo did not have appropriates processes in place to ensure it adequately assessed borrower and guarantor circumstances before approving a loan. This led to a "high risk of consumer harm, both to borrowers and guarantors."

Amigo provides guarantor loans aimed at consumers who may be unable to access finance from traditional lenders, due to their circumstances or credit history.

Guarantor lending means the person applying for the loan is required to have another person, typically a family member or friend, guarantee that if the borrower is unable to make a repayment for the loan, the guarantor will make that payment on the borrower's behalf. For a loan to be approved, both borrowers and guarantors need to pass Amigo's affordability checks.

However, the FCA said that Amigo's assessments were "inadequate."

It explained: "Amigo's lending decisions relied heavily on the use of a complex IT system with a high degree of automation. However, design issues and insufficient controls meant that the IT system processed loan applications in circumstances where it was potentially unaffordable for the customer. Although the system raised flags for manual review in some instances, often staff did not sufficiently consider information provided by customers or probe the information they were given before approving a loan."

The FCA noted that these failings meant that there was an increased risk that guarantors would have to step in. The regulator found that one in four of Amigo's guarantors were asked to step in and make payments to assist struggling borrowers at some point during the term of the loan.

The investigation also found that Amigo had failed to maintain adequate records of its historic business processes. It also negligently deleted the email accounts of former staff members which hampered the FCA's investigation.

"Amigo failed to assess properly the affordability of its lending, especially to vulnerable consumers, as our rules required. This led to lending that was unaffordable for some and meant guarantors had to step in," Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said.

On Tuesday, Amigo said that its new board and management have cooperated with the FCA's investigation. It added that its accepts the findings and that it if it was not for its current financial position then it would have been subject to a GBP72.9 million fine.

The company noted that this marks an "important milestone" for the company, as it brings the legacy issues to a close.

Amigo explained that since the enforcement action began in 2020, the company has "completely changed" and the senior management team "substantially refreshed." "This approach has allowed Amigo to reflect on the past behaviours and to develop its new business proposition, RewardRate, which fully incorporates the lessons learned," it added.

Chief Executive Danny Malone said: "I would like to apologise again to any customers impacted for the past failings in lending practises that occurred during the period 2018-2020. As a new board and management team, we fully accept the lessons that needed to be learnt 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 FCA's decision in October 2022 to allow Amigo to return to lending on a pilot basis reflects the significant change that has been undertaken in the business, and we would like to thank the FCA for working constructively with us. 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."

In November, Amigo said that in the six months ended September 30, it swung to a pretax loss of GBP12.7 million from a GBP2.1 million profit in the same period last year. Revenue plummeted to GBP15.8 million from GBP56.5 million as there was no new lending during the period. Its number of customers more than halved to 49,000 from 102,000 last year.

It faced complaints expenses worth GBP11.3 million, up from GBP5.3 million last year, and administrative and operating expense of GBP15.9 million, widened from GBP13.5 million.

Amigo returned to lending in October 2022, post period end, following approval from the Financial Conduct Authority for a pilot phase to proceed.

By Sophie Rose, Alliance News reporter

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