COMPENSATION payouts for up to one million customers at Amigo loans are under threat after the High Court rejected its proposals to cap mis-selling liabilities.
The guarantor lender, whose loans are backed by friends and family, has previously said that failure to win approval for the cap would tip it into insolvency.
If the firm goes bust, there may not be enough cash left to pay compensation to customers.
The cap or scheme has become necessary after a massive surge in mis-selling claims stirred up by claims management companies.
The redress schemes have already caused payday lenders such as Wonga and Piggybank to go bust.
But the Financial Conduct Authority says Aimigo Loans proposal could be fairer on customers owed compensation.
Are you due a payday loan refund?
MILLIONS of payday loan customers may be due refunds.
Refunds or compensation are often given when the loan was mis-sold or where affordability checks weren't stringent enough. Here's all you need to know:
- Customers who've paid off payday loans debts can still claim. Even if you've paid off your debts you may still be able to get a refund if you struggled to repay the money at the time.
- If you're still paying off payday loan debts you can still complain. You can complain if you've struggled to make repayments. If your complaint is successful it could lower the amount you owe.
- You can still claim is the firm no longer exists. When payday lenders go bust you can still submit claims to the company's administrator, although it is less likely you will receive a refund as you'll just be one in a long line of people owed cash. Also check for complaints deadlines as some administators have imposed deadlines.
Yesterday the firm said its board was now reviewing all options including an appeal although that is not thought to be the most likely outcome.
The ruling judge added that “there is no evidence of any immediate liquidity crunch”.
“Amigo is incredibly disappointed that the Scheme has not been approved,” said CEO Gary Jennison.
“We are currently reviewing all our options and will provide an update at the earliest opportunity.”
Amigo estimates that around 300,000 current policyholders and 700,000 past ones could be entitled to compensation.
The FCA said: “The FCA considered it necessary in this case to share with the court its view that the scheme as proposed was inherently unfair, as it placed a disproportionate burden on customers, as opposed to shareholders and bondholders, to keep the company afloat.”
“This is an important judgement and any firm considering a scheme of arrangement should take it into consideration,” the watchdog added.
Amigo Loans was founded in 2005 and offers loans of up to £10,000 over 12 to 60 months at an interest rate of 49.9% to borrowers who are typically turned away from traditional lenders.
The lender will supply loans to those with poor credit histories as long as a friend or family member agrees to make repayments if they can't.
Complaints over unaffordable guarantor loans have overtaken PPI as the most complained about financial product.
The ombudsman received 10,000 complaints in the last three months of 2020 alone, up from 303 new cases on the year before, many of which were about Amigo Loans following an investigation by the watchdog.
In March last year, the founder of Amigo claimed customers were given "irresponsible" loans in explosive blog post.
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