Amigo shares plummet after regulatory crackdown

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Posted byMairead Finlay | Category Blog | Date 30 August 2019

The guarantor lender Amigo has seen its shares lose half their value in the past week, and the firm has warned that it will be looking to revamp its business model in light of regulatory crackdowns by the Financial Conduct Authority.

Amigo shares drop dramatically

The stock price of the FTSE 250’s business has dropped by a whopping 40 percent in early trading before falling further by the end of the day by 51.6 percent.

Who is Amigo?

Amigo is a company that specialises in guarantor lending, enabling borrowers who have a weak credit history to take out loans, providing that they have a guarantor who is creditworthy, and will step in to make repayments in the event the borrower is unable to pay back the loan.

Scrutinised by the FCA

The company has drawn scrutiny from the Financial Conduct Authority, who have raised concerns about its business model. One of the main worries cited by the FCA was the concern that Amigo customers risked ending up trapped in repeat borrowing, with interest rates for customers being almost 50 percent.

What is Amigo doing in response to concerns?

In response to these concerns, the guarantor lender has stated it will halve the share of the business that usually comes from repeat borrowers. This will halve from 38 percent to 20 percent, and the impact of the halving of these shares will mean lending growth will be slowed down, and costs for advertising will increase in order to attract new customers.

In addition, the company will also look at increasing investment in certain fields, such as complaints-handling and compliance, as well as having stricter credit checking policies in place.

Concerns about the guarantor lending industry

In recent years, the guarantor lending sector has grown exponentially, partly as a response to many payday lenders going out of business due to regulatory crackdowns by the FCA. However, the watchdog is starting to tackle the guarantor lending industry too, having consistently raised worries about firms in the industry business model. The FCA worries that a number of guarantors who sign up to help a friend or family member do not fully comprehend the potential risk they are taking on when becoming a guarantor.

Is it all downhill for Amigo?

Despite the gloomy news that Amigo’s shares had fallen dramatically, it is not all bad news. For example, the number of customer Amigo has in 2019 has increased by 17.3 percent in comparison to 2018.