IT won a string of awards, was commended as a good employer and made much of its mission to help people with a poor credit history.

Yet the future of the lender Amigo is in doubt after it lost a crucial court judgement.

At stake is not just the compensation owed to tens of thousands of customers, but also around 405 jobs at the Bournemouth-headquartered business.

The company had warned that it was “highly likely” to go into administration if the Financial Conduct Authority (FCA) stood in the way of a proposal to cap the compensation it pays to large numbers of complainants.

That view was not accepted by a High Court judge, who agreed with the  FCA that rejection of Amigo's scsheme would “probably not lead to the imminent insolvency of the group”.

But the situation has been a devastating reversal of fortunes for a company that declares on its website: “This isn’t just a business, it’s a cause.”

Bournemouth Echo:

Amigo founder James Benamor

Who founded Amigo?

Amigo was founded as FLM Loans in 2005, by James Benamor, a former Poole Grammar School student who would go on to become a billionaire.

He had already established the loan broker the Richmond Group at the age of 21. He told the Daily Echo later that he had been unable to afford advertising so had printed leaflets and delivered 30,000 of them on foot in the first month.

In 2009, FLM moved from Bournemouth’s Richmond Hill to the Nova building on Commercial Road, once the site of C&A.

It found new customers rapidly with the help of widespread advertising.

Rebranded as Amigo  in 2012, it won accolades such as Best Credit Builder product from Moneynet in 2014; the Treating Customers Fairly Award from Credit Today in 2015; Best Brand and Non-Standard Customer Lender of the Year at the F5 awards; and Best Guarantor Loan Provider at the Consumer Credit Awards.

As late as 2018, it was named Best Credit Builder in the Moneynet awards, not long before the whole subprime loan industry started to run into difficulties.

As an employer, Amigo was rated the 23rd best UK company to work for by the Sunday Times in 2015, and Employer of the Year at the European Contact Centre and Customer Service Awards the same year. 

Mr Benamor had become a well-known figure, appearing on Channel 4’s programme Secret Millionaire in 2008. In the programme, he handed out cheques to people struggling with poverty in Manchester’s Moss Side and confessed to having dabbled in drugs and petty crime as a youngster.

Amigo Holdings was floated on the Stock Exchange in 2018, allowing Mr Benamor, then 41, to sell stock worth more than £200m.

The flotation caused his estimated fortune, in cash and on paper, to rise from £380m to £1.1billion, according to the Sunday Times. But Amigo's subsequent problems were to reduce that valuation significantly. 

What does Amigo do?

Amigo was founded to lend money to people whose credit history made it difficult for them to borrow.

The offering was straightforward: Loans of between £2,000 and £10,000 at an annual percentage rate (APR) of 49.9 per cent. The applicant would have to find a friend or relative to act as guarantor and therefore be liable for the debt if the borrower defaulted.

A customer borrowing £4,000 over 36 months would pay back £195 a month, totalling £7,025.

“This isn’t just a business, it’s a cause,” the company’s website says.

“What we are doing here is important because it makes borrowing possible for millions of ordinary people who are being excluded by banks.”

The alternative for those customers, it has argued, would have been the much higher interest rates of payday lenders. The most famous of those, Wonga, collapsed in 2018.

“The growth of payday loans is a failure twofold – it’s a failure by the banks and it’s a failure by consumers, who do not have all of the information available to them,” Mr Benamor told the Echo in 2013.

“Wonga and the other payday lenders are all lending at the same rate and a lot of people that we talk to do not know the difference between 49 per cent and 4,000 per cent.”

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Why is Amigo controversial?  

The arguments about Amigo’s lending were summed up in a Twitter exchange between Mr Benamor and consumer rights champion Martin Lewis in 2014.

Mr Lewis, the founder of MoneySavingExpert, wrote:  “Feel slightly sick having just seen an Amigo loans ad saying ‘unlike others’ we’re affordable, at a long term 49.9 per cent APR. Things need 2 change.”

Mr Benamor replied: “Amigo is flexible, no charges only daily interest so can be used exactly as a payday loan, but around 100th of the APR”, adding: “Borrowing £500 for 12 months from Amigo costs £118, same as borrowing £500 from Wonga for 21 days.”

Mr Lewis replied: “I know what u do. 50 per cent APR on longer term loans is awful. Comparing urself with the market’s dirtiest doesn’t make u clean.”

The guarantor loan industry – in which Amigo is the biggest player – came under increasing scrutiny. The BBC’s Panorama highlighted cases of people struggling to get out of debt, while Labour MP Stella Creasy claimed Amigo and others “target those in need and hook them into a spiral of debt”. 

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Bournemouth Echo:

What went wrong for Amigo?

By 2019, the Financial Conduct Authority (FCA) was taking a closer interest in the guarantor loan market.

In a half-yearly report that December, Amigo acknowledged that the FCA had “identified some areas where our customer journey could be enhanced”. It had been told to give better information to guarantors. 

Amigo still reported profit after tax of £37million.

Its then chief executive, Hamish Paton, said the company intended to use its position in the market “to be a role model in a growing sector”.

But in May 2020, the FCA began an investigation into how Amigo was assessing the creditworthiness of its customers and the governance of the process.

In November that year, Amigo admitted to “material uncertainty” over its future as mis-selling compensation demands flooded in. it had made a pre-tax loss of £62.6m in six months, compared with profits of £42.3m a year earlier.

Meanwhile, the Covid pandemic led to a pause in lending to all borrowers except key workers in March 2020 and a total freeze on new lending in December.

Compensation provision soared to £159.1m that half-year after Amigo received 25,000 complaints, with an increasing number coming from claims management companies. It had 300 people working solely on complaints.

James Hamilton, an analyst at Numis, said Amigo’s fate was “in the hands of the regulators”.

Around 90 per cent had been wiped off its stock market value – and it was facing flak from its own founder.

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What are the boardroom battles all about?

At the same time as dealing with a flood of complaints on behalf of customers, Amigo was fighting off its own founder.

James Benamor had stood down from his role as chief executive in 2015, remained on the board until 2018, then quit and rejoined a year later.

In March 2020, he quit again as a non-executive director and accused the company of “slow motion suicide”. His investment vehicle held 61 per cent of the shares at the time.

Amigo was, at the time, seeking a buyer as the pressure over complaints grew. The courtship with a would-be buyer would later be called off.

Mr Benamor said the Financial Ombudsman Service had changed its stance on lending so that loans to “virtually anyone” were now deemed “irresponsible”. He said Amigo should either have challenged the ombudsman in court or stopped lending and put itself into administration.

“Instead, they began refunding almost all complaints received, but continued to lend on a virtually unaltered basis, hoping no one would notice,” he said.

He added: “During my short time back on the Amigo board, I have witnessed a company committing slow motion suicide, whilst playing out the script of Brewster’s Millions.”

He claimed the business had become a “cash cow for consultants, lawyers and suits”.

That August, he said he wanted to be installed as chief executive of the parent company Amigo Holdings, with the board’s choice of Glen Crawford as chief executive of Amigo Loans.

He argued that the company should be challenging the ombudsman and devoting some resources to lending outside the jurisdiction of UK regulators.

“The UK regulator’s actions have supported fraud by consumers against lenders, and a campaign of looting led by claims management companies, many linked to the most unscrupulous vultures the industry has to offer,” he said.

Amigo subsequently announced the “unexpected withdrawal” of Glen Crawford as its choice of chief executive, owing to a disagreement with the majority of the board. It named Gary Jennison for the top job.

Mr Benamor’s comeback was thwarted by the board that September and he resumed selling off his shares.

Last autumn, Mr Jennison said the business was still seeing a “sustained volume of complaints” and that fixing the backlog was its “number one priority”.

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What’s happening now?

Last December, Amigo unveiled a plan to deal with complaints and get it lending again.

It intended to earmark between £10m and £35m for dealing with complaints.

Its plan was for a “potential scheme of arrangement” which would cap compensation payouts. Claimants would not all be paid in full – in fact they were likely to receive only 10 per cent of their entitlement – but they would be treated equitably, it said.

Amigo would put £15m into a fund for redress, with the option to add another £20m, and would contribute five per cent of its profits for the next three years.

The company said that “without the scheme, the level of redress claims would jeopardise the group’s future”.

Mr Jennison said: “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.”

The proposals would need backing from a majority of affected creditors and would require approval from a court.

It succeeded in winning over creditors, by 74,877 votes to 3,863 – or 95 per cent of creditors voting, representing £230.7m (95.7 per cent) of the claim value involved.

But the Financial Conduct Authority decided to object to the scheme in court.

It said consumers would have their compensation “significantly reduced”, while shareholders “are not being asked to contribute their fair share”.

Everything was to hinge on a hearing in the High Court.

Amigo’s Gary Jennison was blunt in his reaction. If the scheme was not approved, the company would go into administration and customers would get nothing.

“If the scheme is not approved by the court, then Amigo is highly likely to enter into administration,” he said.

“This will deny mis-sold customers access to a share of the compensation to which they are entitled and will also have a significant impact on the many millions of UK adults who cannot access mainstream credit.”

But in his judgement, Mr Justice Miles said he was “not persuaded that I can properly place any reliance on the vote at the creditors’ meeting”.

“I have accepted the submissions of the FCA that the redress creditors lacked the necessary information or experience to enable them properly to appreciate the alternative options reasonably available to them; or to understand the basis on which they were being asked by Amigo to sacrifice the great bulk of their redress claims, while the Amigo shareholders were to be allowed to retain their stake.”

He accepted the FCA’s view that rejecting the scheme would “probably not lead to the imminent insolvency of the group”.

And he now expects Amigo’s directors to come up with a new effort at restructuring.

Amigo is now reviewing its options, with the future of a once-lucrative business at stake.