Guarantor Loan Provider Amigo Is Up For Sale, Amid Increased FCA Regulation And Customer Complaints | Credit Raters

Guarantor Loan Provider Amigo Is Up For Sale, Amid Increased FCA Regulation And Customer Complaints

28 Jan 2020
Approx Reading time: 3 minutes
  • Amigo, the largest guarantor loan provider in the country, has initiated formal sale proceedings.
  • This decision comes at a time when the FCA has placed additional regulatory requirements on the business to protect guarantors, and also when Amigo is experiencing a drastic increase in the number of complaints it receives from its customers.

Amigo, a credit service provider offering guarantor loans to customers in the UK, has decided to initiate a sales proceeding for its business following an FCA crackdown as well as an increase in the number of complaints it has received from customers.

Just two months earlier, James Benamor, founder of Amigo, reentered the company’s board after using his controlling stake in the business. The company has announced it is undertaking a strategic review of its operations and has also begun a formal process to sell the business.

As far as guarantor loans are concerned, Amigo is the largest provider in the country. Guarantor loans are loans that are given to those borrowers that are usually unable to find a loan elsewhere. A family member or friend has to guarantee repayment of the loan amount on behalf of the borrower, in case the borrower fails to make timely repayments.

The company has experienced massive growth in the past, reaching a valuation of £1 billion at one point. It held a share value of 275p back in June of 2018, although this has been falling since then. After this announcement, shares dipped further by 20%, reaching a new low of 53p.

Benamor owns a 61% stake in Amigo through Richmond Group. So far, no buyer has approached the seller for Amigo, at least according to Amigo itself. However, experts are of the opinion that perhaps some discussions have already occurred before the announcement, and it is likely that Amigo has at least one interested buyer.

The guarantor loans being offered by Amigo are of amounts between £500-£10,000 and carry a representative APR of 49.9%. The business has come under increased scrutiny by the Financial Conduct Authority, especially after concerns that an increasing number of guarantors are having to pay off loans for borrowers due to the latter’s inability to repay the loan. As a remedy, FCA has mandated Amigo and other guarantor loan providers to give out additional precautionary information to guarantors before they sign up as guarantors, clearly highlighting the risks they are committing to bear on these loans.

Additionally, the number of customers who have complained to the Financial Ombudsman Service (FOS) about the services being provided by Amigo has also dramatically increased. According to reported figures, the number of complaints received by the FOS during the first half of 2019 was 266. This figure was 117 during the same time period in 2018.

Complaints against lenders can have serious implications, as proven in the case of Wonga, the payday lender that also experienced a drastic increase in customer complaints.

Amigo has agreed that the operating environment is becoming increasingly difficult for the lender, although it remains confident about the sturdiness of its lending operations. However, for prospective buyers, an increase in the number of complaints by customers is a red flag that would be difficult to ignore.

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Akbar Lashari

Akbar is a talented news editor who follows the consumer finance industry closely and has written for many famous news & educational websites such as Forbes.