Amigo Loans shares plunge 30% as founder accuses company of ‘committing slow-motion suicide’

James Benamor quits board and labels company a ‘cash cow for consultants, lawyers and suits, all of whom had an interest in keeping the gravy train running for as long as possible’

Amigo’s shares plunged to a new low of 28p, taking its valuation to £130m – just a tenth of the £1.3bn it floated at in June 2018 (Amigo)

Shares in high-cost loan provider Amigo collapsed 30 per cent on Thursday after founder James Benamor left the board and warned that the company was “committing slow-motion suicide”.

Mr Benamor quit on Thursday night, just three months after rejoining Amigo’s board in December to try to revive the company’s fortunes amid heightened scrutiny from regulators.

In a statement, he issued a series of stinging criticisms of the company’s board and accused financial watchdogs of wielding “unchecked regulatory power”.

Mr Benamor accused Amigo of “lending almost entirely in a way that matched their own complaints team’s definition of ‘irresponsible’”.

Amigo rejected Mr Benamor’s statement, which it said contained “several material inaccuracies”.

Amigo’s shares plunged to a new low of 28p, taking its valuation to £130m – just a tenth of the £1.3bn it floated at in June 2018.

The biggest loser from that fall is Mr Benamor himself – he founded Amigo in 2005 and controls a 61 per cent stake through his holding company Richmond Group.

Mr Benamor criticised the Financial Ombudsman Service (FOS), which adjudicates on customer complaints.

In the wake of payday lender Wonga’s collapse in October 2018, the FOS tightened up how it assessed whether or not loans were affordable. Customers deemed to have been mis-sold loans they cannot afford are entitled to redress.

“Any indication that the customer had been living beyond their means (or might do in the future) became a reason to retrospectively refund all interest payments as far back as 2010,” Mr Benamor said.

“Loans to customers with no credit problems, but who had an overdraft or a credit card which had not been cleared in full at the end of each month, became ‘irresponsible’ loans – as did loans to virtually everyone else.”

Under its new approach, the FOS upheld 90 per cent of complaints about guarantor loans last year. Amigo has 85 per cent of the guarantor loans market.

If the board did not challenge the FOS’s interpretation of the rules via a judicial review, Amigo would need to set aside £1bn to cover the cost of redress for customers, Mr Benamor claimed. So far it has set aside £26.6m.

“Instead, they [Amigo] began refunding almost all complaints received, but continued to lend on a virtually unaltered basis, hoping no one would notice,” Mr Benamor said.

Amigo rejected what it called Mr Benamor’s “binary analysis” that Amigo either must take the FOS to a judicial review or that it has a systemic problem with its loan book.

The company said it reviewed its loan book regularly and had not found a systemic problem, adding that it was “transparent and open” in its communications to the markets.

Mr Benamor added: “During my short time back on the Amigo board, I have witnessed a company committing slow-motion suicide.

“Within one year of my stepping down from the board, the most efficient company in the FTSE 250 had become a cash cow for consultants, lawyers and suits, all of whom had an interest in keeping the gravy train running for as long as possible.”

Amigo, which reported last week that profits had fallen 32 per cent in a year, typically lends to borrowers who cannot take out loans from high street banks because of a poor credit rating or other financial circumstances.

Amigo charges lower rates than payday lenders like Wonga – around 50 per cent APR.

Amigo says it “provides a much needed product to its customers who, often through no fault of their own, cannot access credit when their bank says no”.

But reports are proliferating of consumers taking out Amigo loans that they could not afford, leading to greater scrutiny from regulators and a rising bill for compensation.

A surge in compensation payments was the key factor leading to the demise of Wonga and – in October last year – the fellow payday lender QuickQuid.

A spokesperson for the FOS said: “We were established by parliament to help people when they have problems with financial businesses. We make decisions based on what is fair and reasonable for each individual complaint we see.

“Before we reach a decision, both parties have every opportunity to provide information or make arguments which they would like us to consider.”