Last week several readers were told they can stop paying Amigo while their complaint is outstanding, through Equitable Set Off.
This is what I have been saying Amigo should do since last December when they announced their first, now rejected, Scheme of Arrangement.
Amigo are trying to set up a second Scheme. But until now they have been insisting that people who have made a complaint have to keep repaying their loan, even though Amigo is refunding to consider their complaints until a Scheme is approved.
Equitable Set Off is a term that most people won’t know. So let’s look at what is being proposed and whether it will be good for you. And why has Amigo delayed doing this for so long?
What is Equitable Set Off?
Here is an example of Set Off:
If you owe someone £500 and they owe you £300, then they can’t insist you pay them £500 because the two debts can be set off against each other resulting in you only owe them £200.
This can be applied to a disputed loan, when you have made an affordability complaint. You owe the lender the current balance of the loan, that was the contract you agreed to. But if your complaint is upheld, the lender will owe you an interest refund. This refund could be larger than your current balance, so they owe you a cash refund. Or it could be smaller, so your balance will be reduced.
There are various types of Set Off, see this legal blog on Cross-contract set-off. But the differences don’t matter here – Amigo is saying you have the right of Equitable Set Off, so you just need to know what the implications for you are.
How Amigo is saying this will work
The readers who have asked Amigo about this have been sent an email saying Set Off is available and a further email with details if they asked about this.
Here are some extracts from the Amigo emails, in italics, with my comments on it.
“In the previous contact we have received from you, you have queried about the option to not make payments to your current Amigo loan, whilst your complaint remains outstanding. We’d like to confirm that this process, Equitable Set-Off, is now available for eligible customers, if they wish.”
So far as I can tell, Amigo is not telling all people with a current loan about this, just those who have recently asked about stopping paying and who have made a complaint.
I think everyone who has made a complaint and owes a balance, borrowers and guarantors, should be eligible. But from readers’ comments below this article it seems that Amigo will only let you exercise your legal right if you have paid more than the amount you borrowed on the current loan, ignoring previous loans. I don’t think that is right, but you can’t make them change their mind. If they say No you are not eligible, then your choices are the same as they were before – carry on paying or talk to your guarantor about stopping paying – see the pros and cons in this other article.
“By exercising your right to for Equitable Set-Off, you agree:
That you will not be making any payments to your loan, due to your ongoing complaint. You believe that you will have a redress payment that you can set off in the future, against your Amigo loan balance”.
You need to have made a complaint. If you have delayed doing this as there seems no point until a second Scheme is approved, you should make a complaint now and also ask for Set Off.
You can keep your complaint very short as it won’t be looked at now. See affordability complaints about guarantor loans for what an affordability complaint is to give you a feel for whether you should complain.
“That Amigo will not be expecting payments from either you or your guarantor, if you agree to this.”
For many people this will be the most important point. Amigo will be stopping sending threatening emails and texts to you and your guarantor saying you will be taken to court if you don’t pay.
“That payments on your account will continue to fall due, and the account fall into arrears.”
This is standard for affordability complaints about other kinds of credit – when you stop paying arrears accrue. Amigo has a price cap policy, so the total amount of interest that can be added can’t exceed the amount stated when you took out the loan.
“That negative information may be reported to your credit file.”
This too is standard for affordability complaints about other kinds of credit. One important point for this Set Off is Amigo is saying they will not ask your guarantor to pay, so their credit score cannot be harmed as the loan doesn’t appear on their credit record.
“That contact will be minimised to you and your guarantor, however, you will still receive certain important communications.”
Lenders are legally obliged to send some warning letters about arrears known as NOSIA letters. There won’t be many of them.
“That any future complaint or Scheme outcome isn’t guaranteed, and that if a complaint isn’t upheld, that any outstanding balance and arrears would be payable.”
If you stop paying, you are taking a risk that your complaint won’t be upheld.
“Can I have this if I have already stopped paying?”
I can’t see why not.
If you and your guarantor have been getting texts and emails pushing you to pay, perhaps threatening court, then these should stop if you tell Amigo you want this right of Set Off.
When you have already stopped paying, I can’t think of any possible downsides in telling Amigo you want this Set Off.
“So far I have been paying – is this a good idea for me?”
You need to think about two main points.
First, whether your complaint will be upheld.
We know Amigo failed to make good checks on a very large number of loans. But what would proper checks have shown?
Guarantor loans are aimed at people with bad credit, but a loan still has to be “affordable” – so you can repay it and also pay all your other debts, bills and living expenses.
Ask yourself if Amigo had actually looked at your credit record carefully and your recent bank statements at the time you took the loan, what would they have seen? Would they have seen a worsening debt situation, someone who would be likely to struggle to pay £197 a month (or however much your loan repayments are) for years?
The other point to consider is whether you have any better options than stopping paying with this Set Off.
If you can’t afford to make the payments now, there is some risk that your complaint won’t be upheld but you may not have any better options than this Set Off. If you win your complaint, the negative marks will be removed from your credit record, your guarantor released and your balance will be reduced or cleared. That is much better than struggling to pay and running up more debt elsewhere and perhaps getting behind with other debts and bills – those negative marks won’t be cleared if you win your Amigo case.
If you can’t afford to make the payments but your guarantor could, opting for this Set Off will save your guarantor a lot of money if you win your complaint, as they would only get a small percentage back of that money in any future Scheme.
If you can afford to make the payments now (or pay some but not all of them) but you want to stop paying as you have already repaid more than you borrowed, your best option may be to opt for this Set Off and put the money aside into a separate account every month. If you do this and you win your complaint, you have some money saved up you can use for something else. If you lose the complaint, you can pay the amount you have saved up off the balance and then just start paying it again. Here the only thing you are risking by stopping paying is the harm to your credit record if you don’t win the complaint.
“How do I opt for this?”
The Amigo explanatory email concludes by saying:
“If you wish to exercise your right to Set-Off, please let us know. We will then enable the option for you to confirm this, via a form on your online account.”
So you can phone them up or email them and say you have heard about the right to Set Off and you would like to stop paying and exercise this right. You need to have already made a complaint, so do this first if you haven’t already.
Why is Amigo only saying this now?
It’s good that Amigo is now telling people they have this right. But they have had this right all the time…
From December 2021 when Amigo stopped considering customer complaints and stopped accepting new FOS decisions, customers have been left without any means of getting their loan dispute considered. However Amigo has been insisting the borrower pays, and going after the guarantor if they can’t, and making threats of court action.
Why has the FCA allowed them to get away with this?
An authorised firm has been allowed to make threats of court action to customers even though it knows the customers have a right of set off which means Amigo would never start a court case.
Many customers may have been pressured into paying thousands of pounds to Amigo because of this. And they may only get back a tiny amount of that if they win their claim in the new Scheme. That has left Amigo with millions more pounds in its bank account.
That’s probably why Amigo hasn’t told people before about their right of Equitable Set Off.
I think the FCA should make Amigo put this right in the Second Scheme. Customers with an upheld complaint who had an open loan should get a refund in full – not a small percentage – of any payments made since December 2020.