Amigo Loans specialises in offering loans to borrowers with a poor credit history, if they have the backing of a guarantor.
The beleaguered guarantor loan company wants to set aside a pot of money of between £15m to £35m to share out among anyone making a complaint within six months of the scheme set up. Existing borrowers will have a portion of their loan wiped off, while other complainants requests will receive a proportion of money from the pot.
Those who have received a final response letter from the firm that upholds the complaint, dated before 21 December, will receive their full compensation payment. Borrowers who have appealed to the Financial Ombudsman Service and had their complaint upheld, prior to the same date, will also be given a full pay out.
Under the scheme, complainants will not receive their full compensation but Amigo says its main objective is that all customers are treated fairly.
In an announcement to the London Stock Exchange, Amigo said the plan was necessary due to the “severity of complaints position”. The directors believe Amigo has enough liquidity in the business to carry on trading in the long term, but unless it shrinks its compensation costs they would “jeopardise” the firm’s future.
In November’s trading update, Amigo revealed its provision for complaints in H1 2021 would need to be increased to more than £159m from £7.5m in H1 this year to handle the continued “higher levels” of complaints it was receiving. All new lending was put on hold last month, following the firm’s decision to only lend to key workers at the start of the pandemic.
The lender is also under investigation by the regulator for its lending practices and was given an October deadline to deal with its complaints backlog.
Gary Jennison, chief executive of Amigo, said: “This scheme is intended to give a fair outcome for all our stakeholders, taking into account creditor priority rankings and will allow the company to return to lending.
“We provide vital financial inclusion to millions of borrowers in the UK unable to access mainstream credit, which will become even more important as the UK recovers from the economic impact of Covid-19.
“Notwithstanding the prospect of a scheme addressing our redress claims, there are also other difficulties in the wider economy, including the very real and immediate impact of Covid.
“The board is confident that it will be able to restart lending in early 2021, though many challenges remain on the way to Amigo returning to the success that the board believes Amigo can achieve for its customers, employees, lenders and all its other stakeholders.”
Amigo’s customers will be allowed to vote on the proposal.
The firm has notified the Financial Conduct Authority and the FOS about its plans and will provide further details before they issue a response.