BOURNEMOUTH’S subprime lender Amigo is looking to secure its own future by capping payouts to customers who have complained about mis-selling.

It said the company could start lending again in 2021 under its proposal to earmark between £10million and £35m for dealing with claims.

Last month, Amigo repeated warnings that there was “material uncertainty” over its ability to continue as a going concern.

It revealed a pre-tax loss of £62.6m in the six months to September 30 after profits of £42.3m a year earlier. Its provision for compensation claims soared to £159.1m in the half-year after it received 25,000 complaints, with an increasing number coming via claims management companies.

It had a team of more than 300 working on complaints.

Amigo warns of 'material uncertainty' over its future

Now Amigo has proposed a “potential scheme of arrangement” to cap compensation payouts.

It said the scheme would not pay all claims in full but would treat customers equitably.

Rising complaints hit profits at Amigo (and lending halted until 2021)

Amigo’s proposals would give customers six months to lodge a complaint. The company would immediately put £15m into a fund for redress, with the option to add up to another £20m. It would make a cash contribution based on five per cent of its profits for the next three financial years.

The company said that “without the scheme, the level of redress claims would jeopardise the group’s future”. It added that it was exploring other options but these would result in complainants receiving much less money.

Amigo chief executive Gary Jennison said: “Together with the board of Amigo, I believe that a successful scheme of arrangement will provide certainty to the total liability arising from customer complaints.

“This scheme is intended to give a fair outcome for all our stakeholders, taking into account creditor priority rankings and will allow the company to return to lending. We provide vital financial inclusion to millions of borrowers in the UK unable to access mainstream credit, which will become even more important as the UK recovers from the economic impact of Covid-19.

“Notwithstanding the prospect of a scheme addressing our redress claims, there are also other difficulties in the wider economy, including the very real and immediate impact of Covid. The board is confident that it will be able to restart lending in early 2021, though many challenges remain on the way to Amigo returning to the success that the board believes Amigo can achieve for its customers, employees, lenders and all its other stakeholders.”

Amigo being investigated by the Financial Conduct Authority

The proposals would need approval from a majority of creditors with redress claims and would also need to be sanctioned by a court.

Amigo lends money at 49.9 per cent annual percentage rate (APR) to people who can find a guarantor to take over the payments if they default. The complaints have centred on whether it properly assessed whether loans were affordable.