On 25 January 2021, Amigo announced that it is proceeding with the next stage of the Scheme of Arrangement which it proposed in December.
Amigo is proposing a Scheme because it can’t afford to pay refunds to all the customers who were given unaffordable loans. It says it is likely to go into insolvency if the Scheme is not approved.
About a million Amigo customers are being texted or emailed about the Scheme. This includes current customers – the borrowers and guarantors for the current 150,000 loans – and all previous customers whose loans have been repaid. This is what the text says:
If you have taken out or guaranteed a loan with Amigo, you may be affected by a scheme of arrangement that ALL Scheme Ltd is proposing with its creditors. You may be a creditor if Amigo owes you compensation. Please go to www.amigoscheme.co.uk and read the ‘Practice Statement Letter’ which provides important information about the process. You should do this as soon as possible. If you do not act promptly, you will lose the opportunity to vote at the Scheme meeting, expected to be in late-April 2021. Further, if the Scheme is approved and then you do not make your claim in the Scheme by the claims submission deadline (expected to be in mid-November 2021), you will lose your opportunity to submit a claim in the Scheme.
This article provides a brief summary of the Scheme for customers – the stages of the Approval process and what will happen in the Scheme if it is approved. If you read this first, then reading the full PSL document afterwards may be easier.
The approval process for the Scheme
The proposed timeline for Scheme approval is:
30 March – First Court Hearing
The main purpose of this hearing is to convene the creditors’ meeting. This is not a rubber-stamp exercise – it will consider the fairness of the Scheme. It is likely to take several hours and FOS and the FCA may make representations to the Court. All creditors covered by the Scheme are entitled to attend and speak – this includes all Amigo customers. The hearing will be online, so that will make it easier.
If the Hearing gives the go-ahead for the creditors’ meeting, Amigo will publish more details about the Scheme and how customers can vote on it.
Late April – creditors’ meeting
A formal creditors’ meeting will be held online where customers and FOS can vote on whether the Scheme should go ahead. But you don’t need to attend this online meeting, you will be able to vote on a page that Amigo will set up for this.
10 May – Second Court Hearing
The second court hearing will consider whether the Scheme should go ahead and whether it is fair to customers.
If the Scheme is approved at this hearing, the Scheme is expected to start in mid-May.
An overview of the Scheme
When the Scheme starts, all open FOS cases will be sent back to the Scheme.
Under the Scheme, customers can put in a claim if they were given an unaffordable loan or were the guarantor for one. Or if they have any other complaint about a loan or the way Amigo treated them.
There will be a six month period for these claims to be sent in after the Scheme start date.
Amigo will decide whether to uphold each claim:
- there are no details about how it will do this;
- will Amigo uphold the same very high rate that the Financial Ombudsman (FOS) does? It has not mentioned this;
- Amigo will appoint an independent person to look at any appeals – you won’t be able to appeal Amigo’s decision to the Financial Ombudsman which most people would prefer to do.
Amigo will then calculate the redress (the legal term for the refund you would have received if there wasn’t a Scheme) for the claims it upholds:
- for borrowers this is the interest they paid.
- Amigo has not said if it will carry on applying the “unpaid interest deduction” that it started making in summer 2020 to reduce refunds. The PSL refers to Amigo replicating its current redress calculations which suggests that this deduction will still be applied.
- guarantors should get a refund of their whole payments.
- where a guarantor is being paid a refund, the borrower’s account will be changed so that the guarantor payments are removed. If the borrower has also had a Claim upheld, interest will be removed from the borrower’s account. There will be a cap to stop the borrower being left worse off after the guarantor reductions and the interest removals, but the effect is that borrowers may get a lower refund calculated than they expect.
If you have a balance still owing to Amigo:
- your balance will be reduced by the refund;
- if you still owe a balance after this reduction, you can make an arrangement to repay it at a more affordable rate and your guarantor will be released;
- if the refund is larger than the balance this extra will be paid from the pot of cash Amigo is putting aside and you will only get a small percentage of it;
- Amigo has estimated that £85m is a reasonable provision for these balance reductions. It has not explained what would happen if the write-offs are larger than this amount.
If you are owed a cash refund:
Customers whose loans have been repaid will have their cash refunds paid out of the pot of money Amigo is putting aside for this. There will not be enough money in this pot to pay full refunds.
The pot will be divided up between all the people who are owed a cash refund who will all get the same “pence in the pound” percentage of their proper redress.
Amigo is putting in £15m, which could be increased by up to £20m if the balance reductions are lower then expected. This sounds unlikely to me – it would only reach £10m if the balance reductions are £25m lower than Amigo expect and £20m if the balance reductions are £50m less than Amigo expects. I think this increase can be disregarded.
Amigo is proposing that it will add 15% of its profits in the next four years into this refund pot. As Amigo is currently loss-making this sounds like some jam in a few years, or possibly none at all.
Amigo hasn’t given a range for what percentage of their proper refund people will actually be paid. A simple comparison suggests people owed a cash refund may only get very little compensation.
- Amigo thinks claims by 150,000 current borrowers will result in balance reductions of c.£85m (I think that may be an underestimate but let us assume it is correct);
- But there is only £15m (with the promise of perhaps some extra in later years) for the 700,000 previous borrowers and guarantors.
So you may get a very low percentage of your proper refund back, possibly as low as 5%.
Amigo expects the first payments to be made in “in the first half of 2022”. I think it may be late in that period as Amigo will have to allow time for any appeals to be made and reviewed.
The main points of interest
I think there are seven key points arising from the proposed Scheme:
- The Financial Conduct Authority (FCA) has not agreed to the Scheme and may not before the first court date.
- There are no details about how Amigo will decide whether to uphold a customer complaint.
- Amigo says this is the best way to treat its customers and other stakeholders fairly. But the bondholders and shareholders are the major gainers from this Scheme and the customers are the big losers.
- Amigo says the Scheme is in the interest of customers who have a valid complaint, but I estimate that tens of thousands would receive more if Amigo went into administration now than they would in the Scheme.
- Amigo has not given an estimate of the percentage of the redress that customers may eventually get paid.
- Why will Amigo not be accepting Ombudsman decisions taken before the Scheme starts? This is in breach of the FCA’s DISP rules and Amigo does not have a waiver from DISP..
- All complaints about current and previous loans will be included, even if they are not affordability complaints.
I have looked at these seven points in more detail here: Amigo’s Scheme (2) – key points to think about.
The FCA will also have to consider the effects on the wider credit market, such as whether the Scheme is anti-competitive, putting other bad credit lenders at a disadvantage.
What do Amigo customers need to do now?
If this is the first you have heard about refunds from Amigo, read Refunds for guarantor loan borrowers or if you are a guarantor, see Complaints by guarantors. Those pages explain why people are making complaints and have a template letter if you want to ask for a refund now.
If you want to know more about the proposed Scheme, read the PSL and look at my other articles on the Scheme.
For the Scheme approval, you don’t have to do anything at the moment:
- you can decide to attend the Court hearing by Zoom if you want;
- it is too early to vote – that comes afterwards, if the court gives approval.