Watchdog set for crackdown when it emerges Amigo has launched high-risk loans before the IPO

Watchdog set for crackdown against & # 39; guarantor & # 39; lenders when it comes up Amigo has borrowed high-risk loans before the IPO

High-risk loans: Amigo encounters questions about the use of so-called pilot loans

High-risk loans: Amigo encounters questions about the use of so-called pilot loans

The watchdog of the city is preparing a crackdown on money lenders in the context of revelations. Amigo focused on risky borrowers before the £ 1.3 billion in stock market trading.

Financial Conduct Authority regulatory authorities focus on the industry, allowing hard-up consumers to borrow money if a friend or family member agrees to pay it back if they fail.

The FCA has said it is concerned about the number of guarantors that must intervene and repay debts, triggering speculation when the watchdog takes action.

Amigo, the largest player in the industry, says that less than 10 percent of the loans are repaid by guarantors and this number is static.

But it faces questions about the use of so-called pilot loans, with which it can target customers whose credit states are so bad that they do not normally meet the borrowing criteria.

The rapid growth of the pilot loans has contributed to the size of the company's loan portfolio increasing in the run-up to the IPO last summer. But it also led to higher defaults because borrowers had difficulty repaying the money.

It is not known whether test loans will occur in the FCA investigation.

Amigo has applied an impairment to the risk that the loans are bad, which corresponds to 21.3 percent of sales for the year until March 2018 – an increase from 6.8 percent in the previous 12 months.

Amigo usually focuses on customers whose credit history is so bad that they cannot borrow from a regular bank and charges them 49.9 percent interest.

But in the pilots, the company is loosening its borrowing rules even further, so that borrowers with even worse records can get money.

According to the results released a few weeks earlier, Amigo issued £ 99 million pilot loans in the year to March 2018, equivalent to 21 percent of the total book.

In the previous year, this higher risk lending accounted for only 11% of the total, according to analysts at stockbroker Goodbody.

Without pilot credits, the total Amigo loan book would have been smaller, which means that it might have attracted less money from investors when it became public.

The Goodbody analysts said: & # 39; A cynic could say that Amigo has pushed hard to generate substantial growth for the first public offering. & # 39;

The analysts added that Amigo has been cutting back on pilot loans since its float, with only 8 percent of new loans accounted for in the first half of the current financial year.

An Amigo spokesperson said: & # 39; The pilot loan program allows research into the benefits of lending to borrowers with guarantors that are just outside the limits of our credit scorecards. & # 39;