This article relates to Amigo’s first Scheme, which was rejected in May 2021.
In December, Amigo published details of its proposed new Scheme. See Amigo’s new Scheme for the latest news.
Surprise, surprise, the new Scheme also gives no details about how many claims may be upheld.
In 24 March 2021, Amigo announced some feedback from the Financial Conduct Authority (FCA) on its proposed Scheme of Arrangement.
Full details have now been given – the FCA’s Letter of Concerns was published on 31 March 2022. This said:
the FCA considers that the Scheme … may not be compatible with the FCA’s rules, principles and strategic objectives. In particular, the FCA is concerned that:
(a) customers with valid redress claims stand to receive significantly less than the value of their claims; and
(b) the methodology for assessing claims does not produce outcomes with the same high standards of accuracy and fairness as would be available under the FCA’s usual framework of complaint handling rules for firms or through recourse to the Financial Ombudsman Service.
However although the FCA does not support the Scheme, it is not currently proposing to take regulatory action to stop the Scheme if it is approved in the voting and then by the Court.
In this article I am looking at the second of those FCA concerns – the question of how Amigo will decide whether to uphold or reject a claim from a customer.
How Amigo will assess claims
Every claim Amigo is sent will have to be assessed. If Amigo decides it is valid, it then has to calculate what the “potential redress” would be. People will then later receive a small percentage of this calculated amount.
Schedule 4 to Amigo’s Explanatory Statement sets out how Amigo will decide claims. But it is just a list of things Amigo will be taking into consideration… I am not sure how many people will read that and think they know what Amigo will decide in their case.
Take a couple of very typical situations:
- Mr A has had one loan from Amigo and has made all the payments on time. Many similar cases are being won at the Financial Ombudsman (FOS) because Amigo did not look closely enough at the borrower’s expenses.
- Ms B had a loan and a larger top-up from Amigo. Last year, Amigo only upheld the top-up loan when she complained, and then deducted an amount for “unpaid interest”. When FOS looked at this sort of case, they often said both loans were unaffordable.
I am unclear what Amigo plans to do with these very typical cases.
Often it isn’t the cash refund that matters
Which loans are upheld is very important – it doesn’t matter if people will get paid 3% or 30% if your complaint is rejected!
The top priority for most people with current loans is to get their guarantor released and the balance reduced or written off. Getting a small refund would be nice, but it isn’t the most important part of the redress.
And for any customers with missed payments or defaults on their credit record, getting them removed can be far more important than a bit of cash.
Customers can benefit from all these non-cash elements – guarantor being released, balance reductions, credit records corrected – if Amigo fails and goes into administration.
The Scheme may uphold fewer claims than in Administration
FOS has been upholding 88% of complaints about Amigo.
I know from seeing a lot of payday loan administrations that the administrators are pretty good at making the same sort of decisions that FOS does. The administrators uphold rates tend to be roughly the same as the decisions FOS made.
So the FCA’s statement that Amigo’s Scheme may not follow the same approach as the Ombudsman is worrying. Perhaps Amigo is expecting to reject a lot more complaints?
Amigo hasn’t given any numbers on what it expects its uphold rate will be in the Scheme. But it has said it expect that the percentage it may payout is could be about 10%.
The average Amigo refund was £5000, so 10% of that would be £500 which suggest they are expecting to uphold about 30,000 complaints. Not everyone will complain, but with about a million customers, that suggests to me that Amigo won’t uphold a large proportion of the claims they are sent.
Amigo has been saying that people will get more in the Scheme than in administration. But this is only true if Amigo upholds the same number claims that the administrators would…
If Amigo doesn’t follow the FOS approach and rejects more cases, these customers may be better off if the scheme does not go ahead and Amigo goes into administration.