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High Court approves new Amigo Loans business scheme

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A High Court judge has accepted Amigo Loans’ proposed new business plan in a crucial step towards the company resuming lending.

Monday’s announcement marks a turnaround for the subprime lender, although it has yet to raise new capital and receive clearance from the Financial Conduct Authority.

Amigo, which offers loans based on someone else’s guarantee, stopped lending in November 2020, citing uncertainty caused by the pandemic. It has not been able to resume operations since due to a dispute over compensation for historic mis-selling.

The company has faced complaints from consumers who accused it of not checking whether their loans were affordable.

“A successful New Business Scheme will open the door to a new source of responsible and regulated finance for millions of people in this country who do not have access to traditional banking services,” Chief Executive Gary Jennison said.

A previous “scheme of arrangement” proposed by Amigo that would have limited compensation payments to a greater extent was rejected by the FCA, which said it unfairly benefited shareholders rather than customers.

The new scheme offers more compensation, in part due to better-than-expected loan repayments in 2021.

Under the new scheme, Amigo will pay compensation of at least £112 million on the condition that it can resume lending within 9 months of the scheme being approved and that it can complete a rights issue in 12 months after approval.

Over the past year, Amigo’s share price has fallen more than 66% despite rising a modest 6.6% since January.

The UK regulator has cracked down on so-called non-standard finance providers in recent years in response to concerns about rising consumer debt.

The number of active short-term high-cost lenders in the UK fell by almost a third between 2016 and the third quarter of 2020, according to FCA figures. Meanwhile, Wonga, once the UK’s biggest payday loan provider, filed for administration in 2018 after a flurry of customer complaints.

Others, like subprime lender Provident Financial, have stopped serving those with the worst credit ratings, leaving this group with a lack of options other than loan sharks and illegal money lending.

In March, Provident Financial chief executive Malcolm Le May told the Financial Times that many of those considered “high risk” for credit were turning to buy now and pay later, a form interest-free online credit available for retail purchases.

Jennison also warned that the UK was “sleepwalking into debt” following the buy it now, pay later.