Amigo’s half-year results for April-September 2019 show a big increase in complaint costs about its guarantor loans. The majority of these complaints are affordability complaints, by the borrower or by the guarantor.
Here is the management presentation on the results.
What Amigo says about complaints
Here my thoughts on some of the points Amigo makes about complaints in the management presentation and in the investor webcast:
The provision includes a combination of estimated redress for known open cases and an allowance for future claims.
Amigo was asked in the webcast how this was broken down between current and future complaints. They declined to answer because of commercial sensitivity. A question was asked about the accuracy of provisioning for complaint costs. Amigo said it was too early to say as the first provision was in Q1. The current provision only includes a “portion” of complaints they may see in the future.
I don’t think those are satisfactory answers for investors. Was there a provision for the FOS backlog of complaints in the Q1 results – if not, why not? What is the average redress cost of a complaint? How many new complaints are being received each month and what is the trend on this? How large is the “portion” there is a provision for – there is a lot of difference between 20% or 80%.
We have reviewed our complaints process in detail and examined the root cause of complaints received.
The FCA’s DISP rules say a firm should consider “whether it is fair and reasonable for the firm to undertake proactively a redress or remediation exercise, which may include contacting customers who have not complained.”
I suspect Amigo’s root cause analysis will have identified borrowers who had more than 2 loans and the “pilot lending” program which targetted borrowers with a lower credit score, as two groups of customers who are very likely to have an affordability complaint upheld.
Amigo should be considering an automatic redress program to assess these customers’ cases applying the FOS approach, and refund interest to them if a loan should not have been given.
With the FOS backlog unwinding, we expect to revert to more normalised, lower uphold rates and a reduced average redress.
The number of complaints may fall once the FOS backlog has gone through. Although Amigo seems to be developing an in-house backlog, with customers being told at the end of the 8 week period that Amigo needs two extra weeks to reply to their complaint.
But that shouldn’t affect the decisions on them. Why should new complaints have a lower uphold rate or a lower average redress value?
During the investor webcast, Amigo said that they had taken the decision to “tactically increase the uphold rate to clear the backlog [with FOS]“.
That is very surprising. FOS and the FCA probably thought Amigo had adopted FOS’s approach to determining complaints on a permanent basis, not just to get through the backlog.
If Amigo starts rejecting more complaints or offering refunds on fewer loans, then more complaints will be going through to FOS again.
The fact that less than 10% of payments come from guarantors is evidence that our affordability assessments are working.
No it isn’t!
The low number of payments by guarantors shows how desperate borrowers are to make payments even when they are unaffordable in order to protect their guarantor. It says nothing about how affordable the loan is for the borrower.
It would also be good to get the statistic on what percentage of guarantors have to make any payments. The “10% of payments are made by guarantors” could mean 20% of guarantors make half the payments on the loans. This is the number that guarantors should warned about at the application stage.
Have you had a problem loan from Amigo?
If you are the borrower of an Amigo loan which caused you big problems, read up about what an affordability complaint and how to make one: Complaints by the borrower of a guarantor loan. You can do this if the loan has been repaid or there is still a balance owing.
If you are the guarantor for an Amigo loan, read: Complaints when you are the guarantor. You may be able to get a refund on the money you have paid (if any) and be removed as guarantor.