It is now three weeks since Amigo’s proposed Scheme of Arrangement was rejected by the court. The FCA told the court the Scheme was not fair to customers, a more fair Scheme could be proposed and it didn’t think Amigo would go into administration immediately. The judge concluded by saying:
The FCA expects the directors to continue to explore and promote a restructuring which fairly allocates the benefits and losses among the various stakeholders. I agree with that, and would urge the directors to continue their efforts to promote a suitable restructuring.
Amigo said before the court hearing:
If the Scheme is not approved by the Court, then Amigo is highly likely to enter into administration.
But it has since softened this, saying:
Without a scheme, Amigo faces insolvency. [my bold]
So Amigo needs “a scheme“, but it doesn’t have to be the original Scheme – clearly the FCA was right!
What is happening to set up a new Scheme? There may be a lot going on behind the scenes, but there isn’t much in public, except the rather pointless survey Amigo sent customers last week.
Here are my thoughts on what needs to be done to come up with a “Scheme 2.0” as I will call it.
This has to be the starting point.
The FCA pointed out how unfair it is that customers owed redress for unaffordable lending are the only people to take the pain in the original Scheme, despite the fact that if Amigo went into insolvency the customers would rank ahead of the shareholders who would get nothing.
A more fair Scheme would divide the pain more equitably. There will have to be more money for redress to be paid to customers and shareholders will get less.
This isn’t a minor tinkering. Amigo said customers may get back 10% of their true refunds in the rejected Scheme. That needs to be increased significantly to be fair.
Negotiations with customers?
The FCA pointed out that there had been no attempt to negotiate with customers who would be owed redress in a Scheme, to explain in detail what was being offered and why it was fair, or for customers to have access to professional advice.
These customers are creditors under a Scheme. I haven’t seen any sign that Amigo is trying to set up a “creditors’ committee” to look at Scheme 2.0. That seems surprising if Amigo wants to move rapidly on this.
A creditors’ committee isn’t essential for a Scheme to be approved. In the unlikely event that Amigo were to up the initial £15 million offered to £150 million, I would expect everyone to be happy without a committee to consider it.
But if Amigo is hoping to get a much smaller increase agreed, this could look more acceptable if Amigo has made an attempt to talk to customers and provided them with access to professional advice.
Hard to see how a survey can help!
We have written to just over 140,000 customers during the week commencing 6 June 2021, via email. The reason for this was to increase our understanding from customers and is also in line with the request of the High Court Judge. Amigo wants to gauge the thoughts of our customers (past and present) on the ongoing situation, with the aim to help us improve our processes and communications moving forward.
But as the FCA has pointed out, Amigo failed to explain to customers that their real choice was not “this Scheme” or “administration then you get nothing” and that its customers are unlikely to have known much about different corporate restructuring options.
I think this was made worse when Amigo adopted the simplistic slogan “Vote For Your Money”, as this screenshot shows:
Unsurprisingly 95% of customers voted Yes, when presented with this.
Sending simple surveys out to customers can’t correct this level of misinformation or improve Amigo’s understanding of what its customers either understand or want.
When Amigo has previously offered customers a choice between Black or White, but the FCA says that Green would be better, then asking your customers why they chose Black or White doesn’t move you any further forward to deciding what shade of green should now be proposed.
What is the expected uphold rate?
The failure to explain that other options were possible was not the only problem with Amigo’s Scheme documents.
The documents were totally silent on the percentage of affordability claims Amigo expects to uphold in the Scheme. Amigo must have modeled what this number will be in order to justify its statement that it expected customers to get 10% of their refunds paid in the Scheme.
We know from Financial Ombudsman (FOS) statistics that they upheld 87% of Amigo complaints in the first half of 2020 and 88% in the second half – pretty consistent!
But see how this was reported and Amigo’s reaction to it on a news website last week:
Nine in 10 of the complaints resolved were upheld by the Financial Ombudsman.
Amigo claims, however, that the uphold rate for all complaints to the FOS is lower at around four in 10.
Where does that “four in 10” number come from? FOS does uphold roughly 4 in 10 of all complaints, but that is across everything, from PPI to pension investment complaints. It is hard to see how that is relevant to the Amigo situation.
But “four in 10” would explain why Amigo thought people may be paid 10% of their calculated redress, a figure which looked much too high if Amigo upholds cases in line with those FOS would.
If this is what Amigo is planning to do, it needs to be explained clearly to customers in the Scheme 2.0 documents. Because if it isn’t, customers who know they have a good affordability complaint may think they have a 9 in 10 chance of winning it, but actually Amigo will be turning down half of the complaints that FOS would have upheld.
This uphold rate is especially important for customers with current loans, who would be able to get these reduced or cleared if they win a claim in the Scheme or in administration. Administrators normally try to follow roughly what FOS would have decided, so if that would be to uphold a lot more claims than Amigo would in the Scheme, the FCA needs to consider if a Scheme can possibly be acceptable when it gives so many vulnerable customers a significantly worse result than administration.
FOS too needs to be told about the expected uphold rate as it may decide it was misinformed before, and would want to vote against Scheme 2.0.
Documents generally need to be made clearer for customers
There are other areas where the Scheme 2.0 documents need to be a lot clearer than the original ones.
Many customers with current loans may not have understood that they have exactly the same right to “set off” a redress refund against their current loan in a Scheme that they would in administration. This information was in the original Scheme documents, but it wasn’t prominent and the consequence that existing customers may gain little or nothing from a Scheme was not made clear.
Amigo is proposing to carry on applying its unfair “deduction for unpaid interest” where it upholds a top-up loan but not the previous loan. FOS does not do this, as I have explained in Amigo should end unpaid interest deductions. This deduction was not mentioned in the original Scheme documentation at all. Customers who had top-up loans need to understand that Amigo may deduct hundreds and in some cases thousands of pounds from their calculated redress because of this.
The Amigo director shareholdings were buried deep in the original Scheme documents. I think customers should be told more prominently that some directors stand to make millions if a Scheme is approved. There is nothing wrong with that, providing customers are fully aware of the facts when they vote on Scheme 2.0.
Remove pressure on people with current loans
The FCA has agreed to Amigo not assessing complaints at the moment and not paying out on FOS decisions. This leaves customers with current loans who have made a complaint in a highly unfair situation.
They have a potentially valid claim against Amigo but have no way to get this looked at now. But Amigo is continuing to put them under pressure to make their monthly payments, even when these are clearly unaffordable.
Amigo is threatening borrowers and guarantors with being taken to court – this aggressive debt collection is unreasonable, with many borrowers desperate to protect their guarantors.
Of course Amigo isn’t actually going to take people who have made complaints to court before the Scheme or during the Scheme. But customers don’t know that and feel very stressed at having to take this risk.
Amigo wanted to pause paying redress payments, but the FCA needs to insist that in exchange Amigo has to tell customers they can choose to reduce or pause repayments until their claims are considered and that their guarantor will not be asked to pay in this situation.
Additionally Scheme 2.0 should provide that if a borrower or a guarantor has their claim upheld, then they should be refunded in full all excess payments they have made since December 2020, not just since the start of Scheme 2.0.