Some UK politicians and financial figures have raised their concerns over the process of refunding historic loans.
Two of the UK’s largest lenders are currently in a process of refunding thousands of customers for mis-sold loans on the basis that inadequate affordability checks were carried out.
Amigo Loans and Provident are two of the UK’s largest operating consumer finance lenders, both facing high compensation bills from former claims who struggled to repay their loans on time. Claimants have argued that loans were unpayable or lead to ‘further spirals of debt’.
Both lenders operate in the sub-prime lending industry, assisting those with less than perfect credit scores, with Amigo requiring customers to add a guarantor to their loan application for additional security.
Amigo has already processed more than £50 million worth of claims to date, either by those that have been submitted directly by customers or via the Financial Ombudsman Service.
Last month, it was announced that Amigo aims to refund around 5% to 10% of the outstanding compensation owed to its former customers, something that they say is imperative to avoid administration – and this has gone unchallenged by the regulator, the Financial Conduct Authority.
Paying a fraction of the outstanding compensation bill is designed to protect shareholders and many will receive bonuses if the business recovers and is profitable in coming years.
Labour MP Stella Creasy said that if they allowed the deal to go through, the government and regulators would be “setting a precedent that it is OK for a company to go bust and not repay consumers, but make sure that it looks after its shareholders and bondholders”.
Creasy has often spoken out against the dangers of high–cost lending products – and fears that a soft approach against Amigo will give Provident the same green light to pay a fraction of refunds owed to potentially 379,000 of its customers.
“That’s the wrong way around when the reason they are going bust is because their business model is about exploiting consumers,” she said, stressing that the government needed to intervene urgently.
The founder of MoneySavingExpert, Martin Lewis, said the regulator needed to use its powers and stand up for consumers. “I would call on the FCA to intervene, to make sure a fair and proportionate balance of the money available from Amigo for redress is given back to customers, who have often had their lives made very difficult by being mis-sold hideous, over-expensive loans.”
In 2020, payday loan giant Wonga.com paid just 4.3% of the value of refunds owed to its former customers, going into administration in the process.