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(Sharecast News) - The Financial Conduct Authority (FCA) "publicly censured" Amigo Loans on Tuesday, in lieu of a fine, for failing to conduct adequate affordability checks on borrowers and guarantors.
A fine of £72.9m was on the cards, according to the City regulator, but it said Amigo demonstrated that would cause it "serious" financial hardship.
It added that a fine would also have threatened Amigo's ability to meet its commitments to a High Court-sanctioned scheme of arrangement, which was aiming to pay redress to customers.
The FCA said that between 1 November 2018 and 31 March 2020, Amigo did not have appropriate processes in place to ensure it adequately assessed borrower and guarantor circumstances before approving a loan.
Amigo's failures led to a high risk of consumer harm, both to borrowers and guarantors.
"Amigo failed to assess properly the affordability of its lending, especially to vulnerable consumers, as our rules required," said Mark Steward, executive director of enforcement and market oversight at the FCA.
"This led to lending that was unaffordable for some and meant guarantors had to step in.
"It also had the effect of prioritising the firm's commercial interests over the obligation to comply with the rules and safeguard customers from unaffordable loans."
Steward said the company proposed a scheme of arrangement, as it could not afford the "sizable" redress bill in full.
"Following intervention by the FCA, the scheme was ultimately approved by the creditors, including the affected customers, and by the Court.
"The scheme aims to ensure an amount of redress is paid to affected customers that is better for customers, in these parlous circumstances, than any other likely outcome."
According to the FCA, Amigo's assessment of whether a customer could afford to borrow was inadequate.
It said Amigo's lending decisions relied heavily on the use of a "complex" IT system, with a "high degree" of automation.
However, design issues and insufficient controls meant that the system processed loan applications in circumstances where it was potentially unaffordable for the customer.
Although the system raised flags for manual review in some instances, the FCA said staff often did not sufficiently consider information provided by customers or probe the information they were given before approving a loan.
The issues were made worse by a failure by Amigo to adequately consider regulatory requirements around affordability and act sufficiently on the findings of a number of internal and external reviews, which identified weaknesses in its approach to the assessment of affordability and creditworthiness.
It said the failings meant there was an increased risk that guarantors would have to step in, with the FCA finding that one in four of Amigo's guarantors were asked to step in and make payments to assist struggling borrowers at some point during the term of the loan.
The FCA investigation also found that Amigo failed to maintain adequate records of its historic business processes.
As a result, on repeated occasions during the investigation, it was unable to provide adequate responses to questions.
It also negligently deleted the email accounts of former staff members which hampered the FCA's investigation.
"I would like to apologise again to any customers impacted for the past failings in lending practices that occurred during the period 2018 to 2020," said Amigo Holdings chief executive officer Danny Malone.
"As a new board and management team, we fully accept the lessons that need to be learnt for the future and our focus remains on rebuilding a business that delivers better outcomes for customers, backed by stronger lending controls and a better culture."
Malone said the FCA's decision in October to allow Amigo to return to lending on a pilot basis reflected the "significant change" undertaken in the business.
"The conclusion of this investigation enables us to draw a line under these historic lending issues as we seek to secure the capital required for the future."
Reporting by Josh White for Sharecast.com.
