On 24 March 2020 Amigo announced that:
given the ongoing uncertainty that the economic implications of Covid-19 could have for our customer base, Amigo has taken the decision to temporarily pause all new lending activity, except for lending to key workers in exceptional circumstances.
This article looks at why Amigo decided to do this and why other lenders, particularly high cost lenders to customers who have bad credit, should do the same.
Some other lenders have also stopped lending
The following high cost lenders have stopped lending in the last week:
- Everyday Loans – on a page about Covid-19 they say “Until further notice we will not be accepting any new applications“. But their guarantor brands, George Banco and Trust Two, and their doorstep lender, Loans At Home, are still taking applications.
- 118 Money – “We have taken our network offline temporarily while we investigate an unauthorised access to our systems.” so this may not be coronavirus related.
- Ferratum – “In light of the current COVID-19 we will not be accepting any new loan applications.”
- Uncle Buck – “We are currently unable to accept applications at this time.” (UPDATE on 25 March it was announced they are going into administration.)
- BrightHouse – their shops have had to close and it’s not possible to buy anything online. (UPDATE they are expected to go into administration in the week starting 30 March.)
Some of these lending halts may be temporary while firms sort out the logistics of working from home and handling the many requests for payment breaks they will be getting.
Amigo had already tightened lending criteria
In its Q3 results published in February, Amigo announced that it was:
trialling new lending policy reflecting lower risk appetite.
It gave more details in its conference call for investors, saying;
we have been trialling a more restrictive approach to new and repeat lending reflecting a lower risk appetite. We have been using a significant proprietary data history to develop scorecards, where we have identified reduced risk and higher expected profitability. We continue to optimize our credit worthiness assessment… this will mean more in-depth checks for some of our borrowers… we could see a material reduction in the future lending volume.
Coronavirus – millions face a very uncertain future
Many people applying to bad credit lenders are already in a financial mess.
That’s not all borrowers. Some people have “thin” credit files who just find it hard to get a loan at a reasonable rate without a good credit history. And others had big problems a few years ago but who are now back in a good job. Both of those groups may be perfectly creditworthy and have no trouble affording a loan even at 50% APR.
But when you add the uncertainly of Coronavirus into the assessment, how could Amigo be sure that anyone applying for a loan will be able to afford it?
In normal times if a lender verifies an applicant’s income and expenses from payslips and bank statements, they have a very good idea of the person’s situation. But now those checks would only show what someone’s financial position was like a few weeks ago, not that they have now lost their job or their self-employment income is collapsing.
That may be the reason for still lending to key workers – Amigo may feel they are still likely to have jobs in a few months time!
This applies to all lenders, not just Amigo
The problem of trying to assess affordability applies to all lenders. And it’s made worse by the fact that some people are going to be desperate over the next few months – they may say in an application that the credit will be affordable when they have little idea what their situation will be.
Lenders should also be assisting current borrowers who have problems with repayments by allowing payment holidays or lower payments, see Coronavirus – how can you pay your debts & bills? So they will have less money to lend to new borrowers.
All these factors suggest that many lenders should be tightening up their lending criteria for the next few months. And it seems most important for sub-prime lenders, who know that many applications will come from people in difficulty and where a high-cost loan is likely to make a bad situation worse.
If Coronavirus means you can’t pay your Amigo loan
If you already have an Amigo loan and your income has fallen because of coronavirus, you need to ask Amigo if you can make reduced payments or have a payment holiday. One reader has reported being allowed a 30 day grace period – I don’t know how many people are being offered this.
It may take a while to get through – the Amigo website says:
Our call wait times are much longer than usual
Today’s announcement by Amigo that it is restricting lending also says:
The Amigo employees freed up from the pause in lending activity will transition into other teams to increase the capacity of the teams that talk to our existing customers, particularly where customers have a need for forbearance, given changes in their financial circumstance.
Was your Amigo loan ever “affordable”?
Think if the loan was already causing you difficulty before Coronavirus. If making the payments has meant you have got behind with other bills or had to borrow more, then the loan may have been “unaffordable”.
Read How the borrower of a guarantor loan can complain which describes affordability complaints with a template letter to use.
If you can win an affordability complaint, the interest will be removed from what you owe, your guarantor will be released and you can make a lower payment arrangement. If your loan has been settled, you can get a refund of the interest paid.
But these complaints take a while, so with an immediate Coronovirus problem you also need to ask for a payment break immediately.