City watchdog is under pressure from multi-party MPs to explain why it is allowing risk lender Amigo to go ahead with a bailout which will cap compensation payments for nearly a million customers, while giving executives the opportunity to earn £ 7million in long-term bonuses.
Ghost Town Minister Pat McFadden and Conservative-led Treasury Committee chief Mel Stride said the Financial conduct authority had questions to answer about how he regulated companies like Amigo and whether he was fulfilling his obligation to protect consumers.
The FCA – which has been responsible for regulating high-cost lenders since 2014 – has confirmed it will not intervene in the program, which is expected to be approved by a High Court judge on Tuesday. The proposal will then be submitted to borrowers for a vote.
McFadden warned that other expensive lenders could profit from the FCA’s lack of action. “If Amigo is able to avoid repair payments through this mechanism, there is a risk that it will set a precedent for other companies in a similar position,” said McFadden. “And of course, people will be appalled if ordinary borrowers run out of cash, while those at the top of the business receive large payments.”
The consumer credit division of home lender Provident Financial has already offered a deal similar to Amigo’s, and other high-cost lenders struggling to cope with compensation claims may follow suit.
“There have been several recent examples where people have financially lost FCA-supervised businesses,” McFadden said. “The FCA needs to look at how it oversees businesses and determine if the right protections are in place for consumers and investors.”
Concerns over Amigo will add to growing frustrations over FCA’s failure to prevent further crises in the city, including the collapse of Neil Woodford’s investment fund and the London Capital & Finance’s £ 236million implosion, which ended in a reprimand from the regulator by a former appeals judge for failing to act in time to protect savers.
Typically, borrowers who have had badly sold loans that they cannot afford are offered a 100% refund of the interest paid, plus an additional interest rate on those fees. Amigo loans are worth up to £ 10,000, are repaid over a number of years, and carry a rate of around 49.9% APR, meaning customers can be reimbursed for money important.
However, Amigo struggles to keep up with the flood of successful complaints filed with the Financial Ombudsman Service (FOS), and therefore offers a program that remuneration capped between 10% and 23% of what would otherwise have been due, if not less. Amigo also plans to reduce outstanding balances for applicants who still have not paid off their loans.
Customers who borrowed loans before December 21, 2020 will not be able to file claims through the FOS if the program is approved.
Meanwhile, five of Amigo’s executives have stock options through their long-term bonus program that could be worth £ 7.3million in five years if the stock price of the company is increasing, as expected, thanks to the agreement.
The company argues that it could collapse into administration if the program is blocked.
Stride said the FCA would face tough questions from MPs if the program went ahead. “Any situation in which directors could receive bonuses based on a reduction in fair and reasonable compensation to consumers would clearly be of significant concern,” Stride said.
“I have no doubt that the Treasury Committee will have questions on this subject for the FCA on our next visit,” he added.
The regulator told Amigo it does not support the program and is concerned about how Amigo plans to assess the abuse allegations. He also opposes Amigo’s plans to pay much less to borrowers who could have received larger payments by complaining to the FOS.
However, an FCA spokesperson said the decision to approve the program rests with the court and the borrowers, rather than the regulator. The FCA said it was working “intensively” with companies ahead of court hearings “to try to achieve the fairest outcome for consumers” and would ensure that the program works as intended. it is approved.
“We appreciate in this case that people feel that they are entitled to a full remedy. However, the alternative to any plan of arrangement can be insolvency, which will likely result in consumers receiving very little or nothing, which we must be very careful about, ”added the spokesperson for the company. FCA.
But Amigo chief executive Gary Jennison stressed that the program was the “only real option” for clients hoping to receive cash compensation, and that Amigo’s potential collapse would only lead clients to further disruption. less reputable lenders.
He said the new management team was focused on turning Amigo around and solving “problems of the past” by ensuring that 15% of the profits were spent on the program over the next four years, in addition to ‘a compensation pot worth up to £ 35million.
“Since it is in their best interests and the real alternative is insolvency, we strongly encourage our 700,000 former clients and 300,000 current clients to vote for their money and support the program,” added Jennison.