Complaints to the financial ombudsman about a type of high-cost loan where the debt is backed by a relative or friend have leapt by more than 3,000% in a year and are running at almost 800 a week.
The surge in the number of unhappy customers means that sub-prime lender Amigo – the biggest provider of so-called guarantor loans – has become the UK’s most complained-about financial firm, according to the latest data.
The growth in the take up of guarantor loans and the explosion in complaints about them, many submitted by claims management companies, may fuel concern about the types of product that have sprung up following the decline of the payday loans industry.
With a guarantor loan, a friend or family member guarantees repayments, and they are often taken out by people who might otherwise struggle to borrow.
According to the latest data from the UK’s Financial Ombudsman Service, guarantor loans were the most complained-about product during the three months from 1 October to 31 December 2020, notching up 10,321 complaints, compared with 303 during the same three-month period a year earlier. That averages out at 112 complaints a day, or 785 a week.
Complaints were made about a number of lenders, but Amigo, which is the largest operator in the guarantor loans market, attracted the most criticism.
Complaints range from borrowers saying the lender should not have given them the loan because they could not afford it, to friends and family members claiming they did not agree to be a guarantor or were pressured into doing so.
The sharp increase meant that for the first time in 13 years, payment protection insurance (PPI) was not the most complained-about financial product.
The Financial Conduct Authority has had concerns about guarantor loans for some time. In 2019 it said the proportion of guarantors who were having to step in to cover missed loan repayments had been growing, and in May last year the regulator launched an investigation into Amigo to look at how it had been assessing customers’ creditworthiness.
Amigo lets those with a guarantor borrow up to £10,000, and quotes an annual interest rate of 49.9% APR. Separate data from the ombudsman, covering the last six months of 2020, show that Amigo attracted 12,854 complaints during the period – more than any other individual financial brand, and more than 3,000% up on the 317 it attracted during the second half of 2019.
Amigo has about 300,000 existing borrowers and guarantors, and there are about 700,000 former borrowers and guarantors. It has been struggling to deal with an avalanche of complaints, and in January this year it unveiled a “scheme of arrangement” that would limit payouts and set a time restriction.
This scheme is “designed to provide a fair outcome to customers with a valid complaint against Amigo,” said the firm, and if approved, it is expected to take effect in May.
Responding to the ombudsman data, a spokesperson for the firm said: “Amigo received a high level of complaints in 2020, which is why we launched the scheme of arrangement in January. We are a new leadership team that want to correct past mistakes in a way that is fair and equitable to all our customers – including our 700,000 past borrowers and guarantors.”
The company warned last week that “if the scheme does not proceed, the high level of complaints could mean that Amigo becomes insolvent”.
It added: “We have faced very serious challenges from the high level of complaints received about our historical lending, a significant number driven by claims management companies which have included many invalid claims.”