Advancis Ltd, trading as Buddy Loans, went into administration on 7 September 2021.
Buddy Loans was a small guarantor lender. Its loans were typical of the UK guarantor market – between £1,000 and £10,000 lent on a 1-5 year term at a 49.9% APR. The FCA describes these loans as “high cost”.
Buddy’s slogan was:
If you’ve got a good BUDDY, you can get a loan!”
Advancis’s last available accounts show that in 2019 it had 48 members of staff and a loan book of under £25 million.
This is the first guarantor lender to go into administration. This article looks at the implications for their customers (bad).
The cost of paying refunds
Like all high-cost lenders Buddy Loans will have struggled during the early stages of the pandemic. It’s hard to keep lending when you can’t tell who will still have a job in a few months and when Covid-19 payment breaks weren’t clearly shown in credit records.
But it is likely that Buddy Loans’s decision that they were insolvent was caused by having to pay customer refunds. Not just the complaints in progress but the likelihood these will increase in future. Like other guarantor lenders, Buddy Loans has had an increasing number of affordability complaints and many of them have been upheld by the Financial Ombudsman (FOS). Here are a couple of recent FOS decisions against Buddy Loans:
- Mr G should not have been accepted as a guarantor because he had a lot of other debt and would have struggled to repay the loan;
- Mr M should not have been given a loan as he was becoming reliant on credit and already failed to pay some loans he had only recently taken out.
Reading the FOS decisions on Buddy Loan complaints, it feels as though there was a systemic problem of not making enough checks. It seems that “having a good buddy” isn’t enough for good lending decisions. And the application process (below) that emphasises speed isn’t likely to encourage accuracy:
What administration means for customers
The administrators have to publish their proposals for the administration within eight weeks. The FAQs on the Buddy website suggest it is likely to follow the standard pattern for high-cost lender administrations.
It is the administrators’ role to realise the assets of a company and divide them between the creditors. This distribution can take a long time – a year or more.
Customers, past and present, borrowers and guarantors, are potential unsecured creditors because they may have a claim against the company eg for unaffordable lending.
The administrators say:
Buddy Loans has been working to develop a methodology for identifying customers who may have suffered a loss as a result of Buddy Loans’ lending practices. Such customers may be eligible for redress.
The Administrators intend to finalise the methodology for identifying customers who may have suffered loss, with a view to putting in place a scheme in which customers with valid redress claims who are owed compensation can be identified and calculated.
We will contact existing customers once the redress scheme has been agreed in order to advise what this means for you. If any redress is due this could reduce your outstanding loan balance, but in the meantime it’s important that you continue to make repayments.
Current customers can benefit from getting their loans reduced or cleared. But the Buddy Loan administrators are already warning there may be no cash to be distributed:
Whilst the position at the outset of the administration is uncertain, current indications are that there may not be sufficient realisations to enable a dividend to be paid to unsecured creditors. This means that former customers with redress claims may not receive any payment. If we’re ever in a position to make a payment to unsecured creditors, then we will contact you and advise what action needs to be taken.
Current loans still exist on the same terms. You are not expected to pay the full amount immediately.
The administrators will probably want to sell the current loan book to a debt collector (with the likely exception of loans that are due to finish soon.)
Having your loan sold isn’t anything to worry about – most debt collectors are a LOT nicer to deal with than most guarantor lenders! And the debt collector will not expect you to repay the full amount immediately.
But the administrators will probably wait to sell the book until claims for unaffordable lending have been determined. A borrower may be able to get their balance reduced or cleared by a refund – only cash payouts are reduced to a small percentage.
Should you carry on paying?
The administrators say:
it is important that you continue to make payments as normal. This can have a positive impact on your credit score.
But what if you can’t afford to do this? You need to talk to your guarantor about this and explain your situation. You and/or your guarantor may be able to make an affordability complaints – if either of you wins that, your guarantor is be released and this just becomes a normal loan for you.
And what if you don’t want to pay more because you think you have a good affordability complaint and you have already repaid more than the amount borrowed? In this situation if your complaint is upheld every payment you make is just reducing your balance and increasing the cash refund that you will get little or nothing of. And any negative credit marks are removed if you win a complaint.
This isn’t an easy decision to make because it can be hard to tell how good your affordability complaint is. But if you can’t afford these payments, you may feel that getting behind with other debts in order to pay Buddy is not a good idea and it would be better to stop paying Buddy.
If the borrower wants to stop paying then the guarantor also needs to decide whether to stop any payments being taken from their account.
To talk your situation through with a debt adviser, borrowers and guarantors can phone National Debtline on 0808 808 4000.
The administrators will stop the current complaint handling process and replace it with the redress scheme process being developed.
FOS will return all open complaints to the administrators to handle.
If there is a FOS Final Decision in your favour it is very unlikely you will be paid. Instead you will be accepted as having a claim for that amount.
A loan is only affordable if it can be repaid and the customer can still pay their other debts and everyday living expenses. If a Buddy loan caused you to get deeper into debt, it may well have been unaffordable.
This affordability test applies to both borrowers and guarantors. You can read more about affordability complaints by borrowers here and by guarantors here. Those pages have template letters for complaints but there is little point in sending those templates in now – instead lookout for an announcement by the administrators about how to make a claim to them.
So check your emails and come back here and see if there is any news every few weeks.
This page will be kept updated. The comments below are a good place to see what other Buddy customers are thinking.