I asked Amigo about some details of the redress people will get if they make a claim to the proposed Scheme and Amigo upholds the claim.
Amigo has had a complete change in its Board of Directors. It now likes to suggest that it will be handling complaints much better. But the answers to my questions are disturbing.
The “unpaid interest” deduction
Amigo applies this when it has decided a top-up loan was unaffordable but not the previous loan. It works out the refund on the unaffordable loan, but then it takes away “unpaid interest” from the first loan. No other lender does this.
These deductions can range from a couple of hundred pounds to thousands. One reader had more than £5,000 taken away.
The logic behind this deduction appears to be that they are trying to put the customer back in the position they would have been without the top-up loan. And to do this they have assumed that if the second loan was not given, the first loan would have continued to the end, so Amigo would have been paid the interest on it.
But that makes little sense. There is no way of knowing if the first loan would have continued.
Even if the first loan was “affordable” at the time it was taken out, it may not have been by the time the borrower decided they needed the top-up loan. Usually people want to borrow more because they are too short of money, often because of making the repayments to the first loan. So if the top-up loan had been refused, the borrower would have had to look for other options. For example, the guarantor could have taken out a cheap loan to settle the Amigo loan.
The borrower wasn’t given any choice by Amigo – they had to settle the first loan. This was paid off with money the borrower never had. So for Amigo to turn round and say the borrower isn’t allowed to settle that loan seems highly unfair.
What would the Financial Ombudsman do?
The Financial Ombudsman (FOS) has made decisions on thousands of these top-up/refinancing situations across many lenders. It has never suggested that the settlement of the first loan should be unpicked leaving the borrower owing more interest.
Here is a FOS decision about a large bad credit loan, where another lender tried to argue for a similar-sounding deduction. The conclusion was:
I don’t think the deduction Likely Loans wishes to make from the compensation due to Mrs W is fair and reasonable in all the circumstances of this case.
A lot of these Amigo cases have gone to FOS. But in all the ones I have seen decided, FOS has looked at the case and decided that the first loan was also unaffordable, so the unpaid interest deduction was no longer relevant. Of course that also says a lot about Amigo’s poor complaint handling, that it has been rejecting refunds on affordable loans.
Will Amigo continue with this deduction in the Scheme?
This deduction looked like a cunning plan to save Amigo money by paying lower refunds.
On the recent Amigo decisions I have seen, it is still being applied. But I hoped the “new Amigo” might want to change its mind and follow the normal FOS redress process in the proposed Scheme.
I asked Amigo whether unpaid interest deductions would be applied in the Scheme. It would have been very simple for Amigo to say No, they wouldn’t.
But I was given this reply:
Where a customer has a good loan followed by a bad loan, we will be taking the customer back to the position they would have been before they took the bad loan.
That looks like a convoluted way of saying they are continuing with this deduction.
CCJs aren’t going to be deleted
Another question I asked Amigo was whether they would be clearing defaults and missed payments from people’s credit records for unaffordable loans and removing CCJs on an unaffordable loan.
Amigo said they would be clearing credit records – good!
But that they would not be removing CCJs. I have no idea why not. If a loan is unaffordable the customer should never have been taken to court for a CCJ.
A CCJ on your credit record is a major problem and FOS always says the lender should arrange for them to be removed. This involves applying to court for a set aside, the legal term for deleting the CCJ.
So no sign of better complaint handling
This feels rather depressing. Not the new broom coming in with much-needed changes.
Meet the new management… same as the old management…