Wednesday, February, 28, 2024 05:38:12

Amigo, a British sub-prime lender, has reportedly escaped a £73 million ($89.1 million) punishment despite putting clients at high risk of damage as there was a concern that the cost of the fine might have caused the company to go bankrupt.

The Financial Conduct Authority (FCA) investigation revealed that Amigo failed to properly determine whether consumers or their guarantors might pay back the loans they applied for, putting business interests prior to its customers. Apparently, it noted glitches in both its automated technology and human error between November 2018 and March 2020.

There was a higher chance that guarantors, who were frequent family and close friends, would have to take over to pay the loan if borrowers missed. According to the FCA's estimation, Amigo's shortcomings resulted in one in every four guarantors being required to make repayments on loans provided during that time.

It has been reported that the watchdog had intended to fine Amigo £72.9 million ($89 million). However, it decided to forego the sanction after learning that this would put the company through serious financial difficulties and jeopardize its ability to carry out an already scaled-back compensation program that offers about 41p per pound owed to mistreated consumers.

Amigo has continued to warn that it is on the verge of closing its doors despite resuming lending under a pilot program in October. Amigo charged 49.9% interest and needed borrowers to furnish a family member or friend to act as a guarantor.

It is currently looking for investors to give the company £45 million ($54.7 million) by the end of May, which would enable it to continue lending. Amigo’s owners intend to shut down the business without that money.

For the record, numerous operational flaws were exposed by the FCA probe. It was discovered that the business relied extensively on fully automated IT systems, which had poor design and inadequate controls, leading it to approve loan applications that ought to have been rejected considering that borrowers could not afford the loans.

Source credit: https://www.theguardian.com/business/2023/feb/14/sub-prime-lender-amigo-avoids-73m-fine