The wind down of the pay-day loan legacy business of Amigo Holdings is “almost complete”, marking the end of a chapter in fintech few are proud of.
Announced in a trading update, Amigo Holdings – formerly known as Amigo Loans – said after paying out £194m in cash redress and refunds to creditors, the process of shutting down its high-cost loan business can soon formally be considered complete.
“Mistakes of the past have cost Amigo and its shareholders dearly, but this chapter is now drawing to a close,” said chief executive Kerry Penfold.
Founded in 2005, Amigo rose to prominence as a quick source of high-interest loans to low-income consumers.
Its practices drew criticism for years due to the considerable debt risks faced by its customers. After the 2008 financial crash, the government enacted tighter rules on lending, marking the beginning of the slow demise of payday loans.
Amigo was able to come out of the financial crisis in relatively decent shape, achieving a period of booming profits in the late 2010s, profits that would ultimately be its downfall.
As former Amigo CEO Gary Jennison told UKTN in an interview, at the time “the business grew very quickly and as a result of that desire for growth, it compromised its lending standards”.
The company faced heavy fines and in 2020 was forced to cease all lending activities.
Amigo remains listed on the London Stock Exchange, however, since its decision to stop lending has only been able to generate revenue from outstanding loans it had already handed out.
The group will not entirely shut down despite the winding down of its former business. The board is now seeking buyers for a reverse takeover, which will allow a private acquiring to go public through Amigo’s London listing.
Shares in Amigo Holdings have fallen by more than a third since the start of the year.
“The era of expensive, subprime lending is rightly coming to an end with Amigo Loans’ departure,” Virraj Jatania, chief executive of Pockit and Monese told UKTN.
“Many subprime lenders failed because they charged sky-high interest rates and approved loans they knew were unlikely to be repaid, rightfully incurring a clampdown from the regulator.”
Jatania noted that while the practices of companies like Amigo in the past were unreasonable, there is still an “urgent” need for credit for low-income households.
“Without responsible alternatives, there’s a real risk that vulnerable consumers will be driven toward unregulated and illegal lenders, such as loan sharks.”
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