Guarantor loans – more refunds being paid!

In May 2019, adjudicators at the Financial Ombudsman (FOS) made several dozen decisions upholding affordabilty complaints by people with Amigo loans. Amigo has accepted all these decisions and has paid out refunds.

These adjudicator decisions are not published by FOS but readers have sent me copies of them. This article has some extracts so you can see what FOS is looking at in guarantor loan complaints and the sort of compensation people are getting.

From July Amigo has been upholding some complaints from customers directly, without their cases having to go to FOS. This is a welcome development for people struggling with guarantor loans, from Amigo or other lenders.

If you want to complain about your loan:

• see this template letter for complaints by a borrower;
• or this template letter if you are the guarantor.

The comments on those two pages are the best place to see how other readers are doing with their complaints.

Background – more complaints about guarantor loans

The 2018/19 FOS annual report shows that it received 529 complaints about guarantor loans in the last year, 150% more than the 210 received in 2017/18.

Most of the recent complaints will be affordability complaints, where either the borrower or the guarantor is saying the lender did not properly check that the loan would be affordable. A loan is affordable when it can be paid out of income, without hardship, getting behind with essential bills or having to borrow more money.

The larger number of Amigo affordability complaints seems likely to have been resulted from three factors:

1. expanding market. Amigo’s net loan book went up 70% in 2017/18 and a further 17% in 2018/19.
2. Amigo’s “pilot lending” program targetted borrowers with a lower credit score who are more likely to get into difficulty and complain. These pilot loans formed over 20% of its lending in 2017/18.
3. increasing awareness of affordability complaints.

In the last six months of last year, only 18% of customer complaints against Amigo were upheld by FOS. My guess is that previously, as there weren’t many complaints, they were not handled by a dedicated team, but that this has changed with the increasing numbers. In early 2019, there seems to have been an internal re-organisation at FOS, with very few decisions about guarantor loans being issued for several months.

Recent adjudicator decisions against Amigo

Twelve readers who had borrowed from Amigo reported in May and early June that their FOS adjudicator has upheld their complaint and told Amigo to refund all interest plus 8% statutory interest. Where a loan hasn’t been repaid, the interest is removed so the customer only has to repay what they borrowed, and any refund on previous loans is used to reduce that balance.

During this period, no reader has reported losing a guarantor loan complaint at FOS.

My guess is that there must have been between 30 and 50 similar decisions against Amigo in this period, as not all will have been from people who left a comment on this website.

A wide variety of situations, but a standard approach

The decisions I have seen have covered a wide variety of situations, from one loan cases to where someone has topped up a loan four times. One customer had a gambling problem. One person had mortgage arrears. Several had credit records showing a worsening debt situation and increased reliance on payday loans.

In each extract, I have changed the borrower’s name.

All the decisions use different words, but this one explains the common approach that FOS investigators took:

When reviewing these complaints, we consider the following questions:

– did Amigo complete reasonable and proportionate checks to satisfy itself that Mr A would be able to repay this loan in a sustainable way? If so, did it make a fair lending decision? If not, would those checks have shown that Mr A would have been able to do so?

– given Mr A’s circumstances at the time of the application, was there a point when Amigo ought reasonably to have realised it was increasing Mr A’s indebtedness in a way that was unsustainable or otherwise harmful – such that it shouldn’t have provided him with the loan?

– did Amigo act unfairly or unreasonably in some other way?

What is “proportionate”?

This comment from one adjudicator was typical:

Given the size of the loan, the total charge for it, the length of time Ms B had to make payments and the potential the guarantor would have to make the repayments, I think reasonable and proportionate checks should’ve reflected a thorough understanding of Ms B’s individual financial circumstances at the time.

Amigo checks were not sufficient

In every one of the May and June decisions I have seen, the adjudicator did not think Amigo made adequate checks.

One example on verifying income:

Amigo has said it used Call Credit’s OI service to verify Mr C’s declared income of £1,350.00. Based on the commitment Mr C was entering into, I’m not persuaded this was sufficient, as this would only provide an indication of what Mr C’s salary was likely to be, as opposed to confirming exactly what his salary was.

And another on verifying expenditure:

Amigo appears to have relied heavily on the [expenditure] figures Mr D provided. And I can’t see that it requested any additional evidence to verify these figures, or that there was any attempt to scrutinise them.

Amigo says it compared Mr D’s expenditure to the national average to ensure this was realistic based on his living situation. However due to the commitment Mr D was entering into, I think Amigo had a duty to obtain evidence to confirm Mr D’s specific expenditure, as opposed to relying on average figures which may not be representative of Mr D’s situation – for example, Amigo already knew that Mr D was a regular user of payday loans which wouldn’t form part of the profile of an average person.

A credit check is not sufficient:

[A credit file check] only gave Amigo an indication of what Mr E’s income and outgoings were. And without asking him to provide further information to satisfy itself that Mr E was able to repay the loan sustainably without the risk of him struggling to meet his living expenses, I don’t think Amigo carried out reasonable and proportionate checks to ensure the loan was affordable and being taken on a sustainable basis.

But credit checks can indicate if someone’s situation is getting worse:

The amount of outstanding debt shown on the credit file check suggests that Mr F was struggling to repay everyone he owed. If he had [as much disposable income as Amigo had calculated], I would’ve expected him to be able to reduce his arrears across other accounts – so I wouldn’t expect to see his arrears increasing over the preceding few months.

And the household situation may be relevant:

Whilst I appreciate that [Mrs G had] told you the majority of the [household bills and her debt] commitments would be paid by her husband I’m mindful that you didn’t have any information about her husband’s income or other costs and so had no way of knowing whether he was in a position to cover them.

Making payments does not show that a loan was affordable

In one case where the borrower had several top-ups, Amigo argued he had a good repayment record:

It said Mr H had also managed his loans well and made all of his repayments in full and on time, which meant he had been eligible to top up his previous loans.

FOS has encountered this argument thousands of times with payday loan complaints and doesn’t agree with it. Just because a loan is repaid does not mean it was affordable. The borrower may have got deeper into debt elsewhere and behind with essential bills. Here the adjudicator commented:

With each loan application Amigo should have been delving further into Mr H’s situation.

This problem is likely to be more acute for guarantor loans than other types of credit as often the borrower is desperate to protect their guarantor. As one borrower told FOS:

Mrs I also says she fell behind with other payments including her council tax and utilities and she says that whilst she was able to repay Amigo it was at the expense of other debts. She explains that this was because she didn’t want Amigo to have to approach her … guarantor, for the payments.

Checking bank statements to verify affordability

The fact that Amigo did not make adequate checks on income or expenses does not necessarily mean that a loan was unaffordable.

As the general approach summarised in Mr A’s case above said, the FOS adjudicator also checks whether the loan actually was affordable. In all the cases I have seen this has been through looking at bank statements together with credit records.

And an Ombudsman-level decision

In May the Ombudsman upheld Miss G’s complaint about all her loans and top-ups, ordering Amigo to refund all the interest. This was an ombudsman-level decision, so it has been published. See Ombudsman – Amigo did not check properly that a borrower could afford the loan for details of this case.

Recent upholds by Amigo directly

Until recently Amigo seems to have rejected all affordability complaints. but the FCA’s DISP rules say a lender should learn from FOS decisions and apply that approach in their own complaint handling.

So it is good news for other borrowers that several readers have reported that Amigo has upheld their complaint without it having to go to FOS.

One reader was very happy to get this email from Amigo this week:

With the above in mind, we have decided to provide a refund of interest on your loans from November 2011 onwards, plus 8% simple interest. This amounts to £16,227.13. We have credited this amount against your outstanding balance which has settled your loan, but leaves £9,765.29 to be refunded to you directly.

UPDATE In early 2020 Amigo stopped upholding many complaints. It is now rejecting some strong ones or only making a very poor offer to refund the current loan when the borrower had previous loans that should also have been refunded. So if they do this to you, send your complaint straight to the Financial Ombudsman!

What about other lenders? And guarantors?

Amigo has more than 85% of the guarantor loans market, so the large majority of complaints to FOS and ones discussed by Debt Camel readers are Amigo loans. But the same principles also apply to other guarantor lenders.

And the points here are also relevant to complaints by guarantors. A guarantor may have several reasons to say they should not have been accepted as a guarantor. One of these is whether the lender did an adequate affordability check on the borrower. And another is whether the loan was affordable for the guarantor.

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