Amigo Loans was able to grow rapidly in the UK market, as it filled a gap in the supply of credit for subprime customers. The company benefited from the aftermath of the 2008 financial crisis, which reduced the availability and affordability of credit from mainstream banks, and increased the demand for alternative sources of finance. Amigo Loans also faced little competition from other guarantor lenders, as it had a first-mover advantage and a strong brand recognition.
The company expanded its customer base from 25,000 in 2011 to 225,000 in 2018, and its loan book from £60m to £730m in the same period. The company also reported strong financial performance, with revenues of £271m and profits of £89m in 2018. In June 2018, Amigo Loans listed on the London Stock Exchange, with a market capitalisation of £1.3bn, making it one of the largest subprime lenders in the UK.
The Challenges Faced by Amigo Loans
However, Amigo Loans also faced a number of challenges that threatened its sustainability and reputation. The company was subject to increasing regulatory scrutiny and intervention, as the Financial Conduct Authority (FCA) tightened its rules and oversight of the high-cost credit sector. The FCA introduced a price cap on payday loans in 2015, and extended it to other forms of high-cost credit in 2019, limiting the interest and fees that lenders could charge.
The FCA also imposed stricter requirements on lenders to conduct affordability checks and treat customers fairly, especially those in financial difficulty. The FCA also launched investigations into the practices of Amigo Loans, and found that the company had breached its rules and put customers at a high risk of harm. The FCA found that Amigo Loans had failed to assess properly whether borrowers or guarantors could afford to repay the loans, and had put pressure on customers to sign up for loans or act as guarantors.
The FCA also found that Amigo Loans had not dealt with customer complaints adequately, and had not communicated clearly with customers about their rights and obligations. The FCA decided not to impose a fine on Amigo Loans, as it feared that it would cause the company to collapse, but ordered the company to improve its governance, systems, and processes, and to compensate customers who had been affected by its misconduct.
