Sub prime lender Amigo Loans has set aside £150 million as possible payment for a rising number of claims of mis-selling.
The firm said it was receiving so many claims that it is likely to see a substantial hit to its profits.
Amigo lends money to people who are either poor or have bad credit histories, as long as a friend or relative is prepared to stand as a guarantor that the loan will be repaid.
Many of the complaints are understood to be about affordability where borrowers must be able to afford loans without having to borrow more or falling behind on other debts and bills.
The firm has already been in trouble with the Financial Conduct Authority (FCA) about the number of complaints received and the time it has taken to clear them.
It was originally given a deadline of June 26th this year to clear a backlog of 9,000 complaints, but, with a substantial increase in the number of complaints to 25,571, the deadline was pushed back to the end of October.
In a progress report it has revealed it has still to give a final decision on 2,517 of those complaints.
In a statement the firm said “Of the outstanding complaints yet to receive a final response by 30 October 2020, 2,209 relate to a specific group of complaints where significant guarantor payments on a loan have been a feature.
“The methodology for calculating redress for this specific group of complaints is being discussed with the FCA. Work to implement a revised redress approach has impacted our ability to issue a final response by 30 October 2020 for this section of complaints.
“Of the remaining outstanding cases, 238 relate to cases where Amigo continues to work with a third party to collect the necessary information required to allow Amigo to calculate the redress due.”
In the three months to the end of September Amigo says it has paid £47 million in redress to customers, Approximately 60% was in cash payments with the reminder being dealt with by outstanding loan balance adjustments.
It also said it holds cash reserves of £140 million and has ‘adequate liquidity to continue to fund operations and support customers’.
Up for sale
In January it put itself up for sale and launched a strategic review because of what it called ‘a challenging operating environment and concerns over increased regulation’.
When the pandemic struck in March it stopped lending except for key workers in exceptional circumstances and has said it doesn’t expect to re-start lending until next year.
Amigo CEO Gary Jennison said: “Amigo has reviewed and reached a decision on all cases included in the complaints voluntary requirement we agreed with our regulator.
It is a testament to the efforts of the whole team that this has been achieved by the end of October, notwithstanding the approximate 10% of cases that have a specific, known reason why they have yet to receive their final response from Amigo.
“While operationally we have turned a corner with complaints, the sustained volume we are seeing will have an impact on the complaints provision going forward. We have placed the provision under review and a full update will be provided at our half year results.
Working with our regulator to fix the complaints situation is our number one priority and this is non-negotiable.
“We will be back lending to our customers that need to access an Amigo loan as soon as we can, but do not envisage this being before 2021. We are fully aware of our responsibilities as a lender and the important role that we play for the millions of people in the UK that are unable to get a loan from a mainstream bank.”
An FCA spokesperson said: “We are aware the firm issued an update on complaints and the complaints voluntary requirement with the FCA. We can confirm we have been working with the firm regarding complaints and have no further comment at this time.”