Amigo wants to limit guarantor loan mis-selling payouts to avoid going bust – what it means for you

Update 25 January 2021: Amigo has today started to notify customers by letter, email and text of the proposed new redress scheme and has launched an online portal on it. However, the scheme still needs to be approved. A High Court ruling is expected on 30 March, which will give creditors permission to vote on the scheme. At least 50% of creditors need to vote in favour, and the total value of their claims must represent at least 75% of the value of the claims of all creditors who vote.

Guarantor loans are expensive products, with interest of typically 50% APR, where a borrower who's struggled to access standard credit can get a loan by nominating a friend or family member to be a 'guarantor', who is responsible for payments if the borrower can't make them. 

Yet many have been mis-sold and Amigo has been hit hard by mis-selling payouts, so has this week set out plans under a so-called 'scheme of arrangement' which it says is a bid to stop it going bust. 

A scheme of arrangement is a legal agreement between a company and those it may owe debts to. A company first needs approval from the courts to begin the process of setting out such a scheme. It then has to arrange for those involved in the scheme to agree to it via a vote, and requires further court approval before bringing it into effect.

While the potential agreement would limit what Amigo pays out to those with mis-selling claims, this amount could be even less without a scheme in place.

Our Reclaim Guarantor Loans guide has full help on how to check if you were mis-sold and includes our free reclaiming tool. Here's a quick Q&A to guide you through Amigo's plan:

What exactly is Amigo proposing?

Amigo wants to create a scheme to limit what it pays out as, otherwise, it admits it could go bust. If that happened it says borrowers would get even less than under the proposed scheme, the details of which are as follows:

• There would be a cap on payouts and victims wouldn't get full payouts. Amigo admits "not all claims relating to customer redress will be paid in full" but it is not yet clear what percentage people would get. All Amigo has said for now is that it would initially set aside £15 million, which could be increased by a further £20 million, plus 5% of profits over the next three financial years.

• There would be a six-month deadline to submit a claim. But it is not yet clear when the clock for that would begin. 

The scheme would lead to Amigo creating a new complaints system, yet it's unclear exactly how that would look in practice. 

The scheme isn't definitely going ahead

Amigo has yet to get permission for the scheme and is applying to the High Court for approval. 

What does this mean if I've got an existing Amigo complaint?

For now, this is what it means for you:

• Already got an agreed payout from Amigo or had a payout ordered by the Financial Ombudsman Service? As long as the offer/order was dated before yesterday (Monday 21 December) you should get the cash as normal.

• In all other cases, your complaint will be processed as normal but could be paused at any point, while it is unclear what will happen to it if the scheme is approved. Amigo has asked regulator the Financial Conduct Authority (FCA) to allow it to pause complaints till the High Court has made a decision.

  In response the FCA has said: "We are aware of the announcement made by Amigo on pursuing a scheme of arrangement and are engaging with the firm." 

  If the scheme is approved it is unclear if you'd need to resubmit your claim or not, although Amigo says the expectation is existing claims would be transferred over.  

What if I make a new complaint now?

You can start a new claim but, as we say above, it may get paused while the High Court makes a decision on the new scheme.

If the scheme is approved, Amigo says its expectation is for complaints already submitted to be transferred over so you shouldn't need to start the claim again. See our Reclaim Guarantor Loans guide for full help on how to check if you were mis-sold and our free reclaiming tool. 

Why is this such a big issue?

Latest quarterly complaint figures from independent arbitrator the Financial Ombudsman Service show that it found in favour of borrowers in 88% of guarantor loan mis-selling cases that it ruled on (this percentage applies across all guarantor lenders – it's not specific to Amigo). This is the highest rate of complaint success out of any category the ombudsman oversees – even higher than payday lending and PPI. 

Complaints typically centre around loans being unaffordable and lenders not doing proper checks around this. The ombudsman said: "The behaviour we've seen from some lenders is simply not good enough."

I've got an Amigo guarantor loan – do I still need to keep repaying it?

Those with existing loan agreements need to continue to meet all of the obligations of their loan agreement, including making repayments.

You can't currently get a loan with Amigo as it temporarily suspended most lending in March following the coronavirus outbreak.

What does Amigo say? 

The company said in a statement that without a scheme in place, the level of mis-selling claims would jeopardise Amigo's future in the long term.

It added: "Amigo continues to explore alternative options but it is likely the alternative options would result in those with redress claims receiving considerably lower amounts (if any at all) than they would under the scheme."