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PARMZ welcome back. See I knew you couldn't keep away. You love this share.
You quote the investigation and it is exactly that. Given the fca signed off on amigos lending practices there is also a good chance many complaints are not upheld. Ultimately as you say we do not know but a few words from Glen and we might see some changes very soon. I expect he might like to see the SP back above 38p!
@Mb018538, some of the complaints could be related customers complaining about haveing been given chance to borrow the money from the company when his/her credit checks don't pass. In this case it's not just the interest, the loan amount also could be removed from the payment. (It's akin to Casino letting a person play after he/she self-excludes. Casino responsbile for any amout of loss and has to pay). I know it sounds ridiculous. That's how some of the regulations could be. Don't take me as de-ramper. I understand there is real value with the company (before FCA thing and the complaints). But there is a lot of informtion yet to be published related to kind of complaints they are dealing with and the FCA investigation and weather they will be allowed to ask the borrowers to sign up family or friends as guarantors in future or not.
From BBC news article -
"Amigo lends money to people with a poor credit history, but has been criticised for asking borrowers to sign up family or friends as guarantors.
the firm said that the investigation would focus on whether or not its credit checks on borrowers were carried out in line with lending rules."
Which is where I have to agree with JB.
Amigo have to challenge the FCA/FOS.
The claimant does not benefit if Amigo fails and payments are pence in the pound.
The concept of taking a complaint to FOS with no merit and Amigo being charged £650.00 is a major weakness, this is unlikely but if the claimant could be charged would stop some of the complaints and benefit everyone because the FOS queues would be shorter and they could deal with the real cases.
Copied from Macfarlanes law article June 2020.
The FCA itself has not released a statement but, according to Amigo’s press release, the investigation will cover Amigo’s lending from November 2018, which is when new rules came in to (i) protect consumers from unaffordable lending and (i) govern how lenders assess borrowers’ creditworthiness. The new rules revised the definition of ‘creditworthiness’ as consisting of credit risk and affordability, meaning lenders must now consider both the risk to themselves that the customer will not repay and how difficult it may be for the customer to meet repayment obligations. Additionally, there has been a spike in FCA complaints about Amigo’s conduct since the new rules came into force, which will have raised the lender’s profile on the FCA’s radar.
The investigation only covers the 2018 rule change to present!
That is correct. Borrowers still have to pay back any money borrowed, the interest is just removed. But if it goes to the FOS it costs £650, so that customer is a net loss for Amigo.
The issue is a big change in the FOS and FCA stance. A couple of years ago only around 20% of complaints were being upheld. By early 2020 this had risen to between 90-95%. The relatively small figures on the past Amigo quarterly statements reflect the low uphold rate, but now the uphold rate is so high, this will rocket to an unknown figure of £35m+
Customers who have had any loan in the last 6-8 years can retrospectively get refunds, even if they have fully repaid on time, and this will be the potentially killer blow. The unknown is just how many will try and claim, hence the wide estimates of total cost.
I can certainly see how these complaints can scale but you have to factor in how many have already been settled in the past few months and how many of those are impacting the cash pile. We don't know any of these figures yet, if it's a current loan the interest is removed and capital is continued to be repaid. What are you including in your figures ? It makes a big difference.
I think our loan book at 31st December was 722million. Complaints in Q3 cost 16.2 million and Q2 around 10 million.
Malpenn - I don’t think you understand the scale of the complaint problem.
Saying they have 8 weeks to resolve them and that is plenty of time is one thing.....in reality thousands or tens of thousands of complaints are taking way beyond that, and up to 5/6 months without resolution yet. Their aim is to be in a position by the end of October to return to the 8 week timeframe. If they miss their next FCA deadline they are finished IMO. They’ve missed one (end of June), they won’t be allowed to miss two.
Also the cash situation - I’ve seen analyst forecasts of this costing up to £200million (could be wrong of course).
It was £35m in May, then ‘materially higher’ , which could be any amount between the two. I would hazard a guess at it being easily £100m plus. It’s no real surprise the share price is where it is really.
The business as it sits is fundamentally weak without a change in regulation, or change in lending practice and massive uptake of new criteria loans generating revenue.
Q3 report gives a good indication of what’s coming down the line.
Guarantors will not want their credit rating impacted by not paying if the borrower can't make the monthly payments. Amigo approve only 15% of loans, so the guarantors must have the funds to pay. Last update told us the collections remain strong. Guarantor model works and this is why we will come out the other side..
Does anybody actually know what the collection rates are in the last 3 months?
Given the fact that the FCA have issued guidance around offering customers forbearance due to COVID, I would assume that the figures you’re quoting do not take this into account and that it’s actually a lot less than anticipated.
We know that the company had £136 million in cash from the last update, this is likely to increase month by month. We know that complaints are being settled, where there is an active loan the interest is removed. Therefore with active loan complaints we are not eating into our cash pile, and the capital is being continued to be collected. Where the loan has been paid off and a complaint has been upheld the company is making redress payments from cash, assuming we are +20 million per month and we have 8 weeks to review a complaint that gives us a lot of breathing space before we really eat into our cash. The very large loan book is being paid off, very little new business but that good until we get a new fully approved affordability process with the FCA. We are converting the loan book in cash and potentially can make bond payments early.
Apart from the 1% sale by JB daily which is clearly impacting the share price I can't see the downside and looking forward to the end of year results.