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Subprime lender Amigo faces watchdog investigation

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Amigo Loans' logo. Photo: Amigo Loans
Amigo Loans' logo. Photo: Amigo Loans

Guarantor lender Amigo Loans (AMGO.L) is being investigated by the Financial Conduct Authority (FCA), the company said on Monday, as an increasingly messy dispute between the company’s board and founder continues to escalate.

Amigo said in a brief statement that the FCA last week opened a probe into “whether or not Amigo's creditworthiness assessment process, and the governance and oversight of this, was compliant with regulatory requirements.” The investigation covers lending from late 2018 to date.

The FCA declined to comment.

Amigo is a subprime lender that gives people with poor credit ratings personal loans as long as they have a guarantor — a friend or family member who agrees to make repayments on their behalf if they can’t pay and fall behind.

The company last year lent around £700m ($854m) to 224,000 customers in the UK. The loans carry an annual percentage interest rate of 49.9%. This is a lower interest rate than traditional payday lenders but higher than a regular bank loan. It markets itself as “an alternative to payday loans.”

News of the investigation came alongside an escalation in a dispute between Amigo and the company’s founder, James Benamor.

Benamor, who still owns around 60% of Amigo, is seeking to oust Amigo’s entire board over what he claims in the mismanagement of the business.

Amigo’s board on Monday took the unusual step of seeking a High Court injunction to stop Benamor voting for their removal and the appointment of his favoured new executives. The company said the move was “a last resort” due to Benamor’s “refusal to engage.”

“The Board has offered to leave, and will do so, but it must be through an orderly process,” chairman Stephan Wilcke said in a statement. “We cannot risk the Amigo group's ability either to conduct its FCA regulated activities or to continue as a London-listed company operating in accordance with the UK Corporate Governance Code.”

Benamor’s preferred new candidates for chief executive and chair have not been approved by the FCA and the current board fear the regulator could take action if Benamor’s candidates are put in place.

Amigo’s current board also argue that Benamor’s actions violate a “Relationship Agreement” that was set out in Amigo’s stock market listing prospectus that limits Benamor’s power over the company. Violating that agreement could get the company in trouble with stock market listing authorities.

“Amigo is a publicly listed, regulated company, not a wholly owned private subsidiary,” Wilcke said. “We are duty bound to protect the interests of all shareholders and to prevent a majority shareholder acting in breach of the Relationship Agreement."

Benamor, who stepped down as chief executive in 2016, first publicly raised concerns about how the company was being run in a lengthy blogpost in March. He claimed the company was “committing slow-motion suicide” by failing to get to grips with recent changes made by UK regulators.

Benamor said a change in how the Financial Ombudsman Service defined irresponsible lending made it tougher for Amigo to write new loans and could require up to £1bn in redress payments.

“Amigo’s board have an obligation to customers and shareholders to recognise this, and to be clear about the company’s current situation,” Benamor wrote. “They must immediately cease lending, collect in the book, pay down debt, and proceed directly to judicial review.”

Amigo has refuted Benamor’s claims.

Amigo has been trying to sell itself throughout the dispute with Benamor. The company said last week it had received a £100m offer from an unnamed acquirer. Benamor has said he will not support the bid.

Amigo said on Monday that takeover talks continue but cautioned that there could be no certainty about a potential sale.

Shares in the group fell over 5% on Monday. The stock has fallen over 90% since it went public in mid-2018.

Chart: Yahoo Finance
Chart: Yahoo Finance