The Financial Conduct Authority (FCA) has publicly censured Amigo Loans for failing to conduct adequate affordability checks on borrowers and guarantors.

The regulator would have imposed a fine of £72,900,000, however Amigo demonstrated that this would cause it serious financial hardship. A fine would also have threatened Amigo’s ability to meet its commitments to a High Court-sanctioned scheme of arrangement, which aims to pay redress to customers.

Between 1 November 2018 and 31 March 2020, Amigo did not have appropriate processes in place to ensure it adequately assessed borrower and guarantor circumstances before approving a loan. Amigo’s failures led to a high risk of consumer harm, both to borrowers and guarantors.

Mark Steward, executive director of enforcement and market oversight at the FCA, said: “Amigo failed to assess properly the affordability of its lending, especially to vulnerable consumers, as our rules required. This led to lending that was unaffordable for some and meant guarantors had to step in. It also had the effect of prioritising the firm’s commercial interests over the obligation to comply with the rules and safeguard customers from unaffordable loans.

“The firm proposed a scheme of arrangement as Amigo could not afford the sizable redress bill in full. Following intervention by the FCA, the scheme was ultimately approved by the creditors, including the affected customers, and by the Court. The scheme aims to ensure an amount of redress is paid to affected customers that is better for customers, in these parlous circumstances, than any other likely outcome.”

Amigo provides guarantor loans aimed at consumers who may be unable to access finance from traditional lenders, due to their circumstances or credit history.

Guarantor lending means the person applying for the loan is required to have another person, typically a family member or friend, guarantee that if the borrower is unable to make a repayment for the loan, the guarantor will make that payment on the borrower’s behalf. Both borrowers and guarantors needed to pass Amigo’s affordability checks for a loan to be approved.

Amigo’s assessment of whether a customer could afford to borrow was inadequate. Amigo’s lending decisions relied heavily on the use of a complex IT system with a high degree of automation. However, design issues and insufficient controls meant that the IT system processed loan applications in circumstances where it was potentially unaffordable for the customer. Although the system raised flags for manual review in some instances, often staff did not sufficiently consider information provided by customers or probe the information they were given before approving a loan.

These issues were made worse by a failure by Amigo to adequately consider regulatory requirements around affordability and act sufficiently on the findings of a number of internal and external reviews, which identified weaknesses in its approach to the assessment of affordability and creditworthiness.

These failings meant there was an increased risk that guarantors would have to step in. The FCA found that one in four of Amigo’s guarantors were asked to step in and make payments to assist struggling borrowers at some point during the term of the loan.

The FCA investigation also found that Amigo had failed to maintain adequate records of its historic business processes. As a result, on repeated occasions during the investigation, it was unable to provide adequate responses to questions. It also negligently deleted the email accounts of former staff members which hampered the FCA’s investigation.