GUARANTOR lender Amigo has warned its future is "under threat" because it faces a lb345million bill to pay for compensation to its customers.
Amigo, which lends to individuals with people with a bad credit score scores and whose loans are backed by friends and family, is facing coughing up massive payouts over mis-selling loans to customers.
It revealed in the latest financial results that it also designed a loss before tax of nearly lb284million for that year ending March 31, 2023 due to the price of these complaints.
Experts have warned that should Amigo collapse, customers will find it much harder to claim a payout – there may not be enough cash to pay for the compensation.
It was initially revealed in June last year that the expensive credit lender had been investigated through the city watchdog over concerns it might have lent to people who couldn't afford to repay loans.
The Financial Conduct Authority looked into whether Amigo's creditworthiness assessment process, and the governance of the, met industry rules.
Nearly a million Amigo customers might be due money – however the company put forward a rescue intend to the High Court proposing to cap payouts and also to reserve a limited pot of money for customers.
However, the plan was rejected through the High Court in May, because the ruling judge said that "there is no proof of any immediate liquidity crunch”.
But Amigo has stated whether it cannot reach an agreement using the FCA and High Court over how you can repay customers, it is likely to go bust.
Amigo leader Gary Jennison said: "The intense challenges we've faced from the higher level of complaints received around historical lending primarily between 2023 and 2023, as reflected in today's results, have left the company with a significant liability for compensation payments and put our future threatened by."
An FCA spokesperson said: “We still build relationships the firm on next steps since the court decided not to sanction the firm's proposed scheme of arrangement in May this year.
"Our objective would be to ensure that consumers get the best possible outcome within the circumstances.”
Amigo Loans began in 2005 while offering loans as high as lb10,000 over 12 to 60 months in an interest rate of 49.9% to borrowers who're typically turned away from traditional lenders.
The lender will supply loans to people with a bad credit score histories so long as a buddy or member of the family agrees to create repayments if they can't.
What could happen if Amigo goes bust?
If the firm goes bust, there might not be enough cash left to pay compensation to customers.
Money.co.uk senior personal finance editor James Andrews said while it's "little surprise" that Amigo is facing mega losses, customers should "know where they stand" whether it goes under.
He said: "When the company collapses it might be far harder to claim, as Wonga customers discovered in 2023."
Wonga went under back in 2023, owing countless pounds in compensation to tens of thousands of customers who had been mis-sold loans.
But customers were complaining as late as 2023 they still hadn't received their cash.
Moneyfacts finance expert Eleanor Williams asserted you will still need to pay your loan even when Amigo goes bust.
This happens because overdue loans are often sold onto others – who will then bring your repayments.
"Consumers shouldn't assume that should financing company collapse that they are 'off the hook' and their debt would then be forgotten," she said.
"In order to protect their credit score, it is important to continue making their repayments and meeting that commitment, even if they do not get any updates using their provider".
Mr Andrews added that Amigo customers should take a look at their contracts should Amigo go below.
"If you are currently paying off an Amigo loan, the very first thing you need to do is find this clause inside your contract and appearance that the terms aren't set to change in case of a collapse," Mr Andrews said.
If it isn't clear, you can go to charities or services like Citizens Advice free of charge impartial advice, he added.
You may also use Money.co.uk's loan repayment calculator if you need to make sure how much you have to repay on your loan.
Can I still make a claim?
You can still make a claim if you believe you had been mis-sold a loan by Amigo.
Mr Andrews said you are able to write to the Financial Ombudsman, or take the company to the court.
"However, even if you think your case for compensation is robust, there's no guarantee of success.
"What's more, even just in the big event of a win, the number you receive in compensation might even be less than the cost of your legal fees."
Even if you've paid off the money you owe you may still be capable of getting reimbursement if you struggled to repay the cash at that time.
Complaints over unaffordable guarantor loans have overtaken PPI as the most were not impressed with financial product.
The ombudsman received 10,000 complaints within the last three months of 2023 alone, up from 303 new cases on the year before, a few of which were about Amigo Loans following an investigation through the watchdog.
In March last year, the founder of Amigo claimed customers received "irresponsible" loans in explosive blog post.