Amigo Loans to Expand into Ireland, Offer First Loans on March 31, 2019
Amigo Loans, a British lender, is causing backlash in Ireland after the moneylender attempted to break into new markets. The lender offers loans with interest rates as high as 50% in some cases, and some are calling the rates “state-sponsored robbery.”
Moneylenders are being called out in Ireland, being accused of getting rich on the “back of people” that are trying to cover bills for their families.
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Ireland is considering putting a cap on interest rates that lenders are allowed to charge on loans. Amigo plans to start offering loan options in the country in 2019. The Central Bank has approved the bank’s license to operate, and loans of up to £10,000 can be dispersed within a 24-hour period.
Critics of the company claim that legislation may need to be reviewed to stop borrowers from falling victim to predatory lending practices.
Public consultation in March has led the Central Bank to start reviewing rules, with a focus on unsolicited contact of borrowers, promotion and advertising options. The rules will be extended to every short term loan provider, providing greater protection for borrowers.
The University of Cork has released a study that found that some loan providers charge as much as 300% interest. The report recommends strict controls be put in place to protect consumers who are vulnerable to predatory practices. Female borrowers make up the majority of lenders, and loans are often secured to cover household emergencies, back-to-school needs or holiday expenditures.
Amigo requires loans be backed by friends and family, and the bank has over 200,000 customers in the United Kingdom. The lender will operate as Amigo Loans Ireland Limited, and the first loans that the bank will underwrite in Ireland are expected to take place on March 31, 2019.
The bank has been operating solely in the UK, and the expansion into Ireland is its first attempt at overseas expansion.
Amigo claims that they offer “mid-cost credit” to consumers. Loan guarantors, often a family member or friend, will be responsible to make the loan payment if the borrower fails to pay. Loans of £5,000 can cost as much as £8,700 to repay over a 36-month period.
Similarities between the market in the UK and Ireland have led to the company’s move to Ireland. The company claims that they want to trial their concept in Ireland, calling it the “Amigo in a box” concept.
Amigo’s revenues are rising despite backlash against the lender. The bank’s revenues have risen 40% in the first half of the year, climbing to £130 million. The rise in revenue and the number of consumers taking out loans shows a need for additional loan options that traditional banks and credit unions do not offer.
Pre-tax profits rose as much as 62.4% in the company’s half-year results. The company’s profits rose to 48.4 million pounds for the six-month period ended September.
Opponents claim that while Amigo’s interest rates are better than the competition, with many requiring 187% interest, the rates are still too high and take advantage of vulnerable borrowers. Opponents fear that the lender will result in many people’s parents acting as guarantors for the loan and will be required to repay the loan on behalf of their children.
The Central Bank’s relaxed approach to the situation has raised questions over why the bank has failed to change mortgage lending rules in the country. Mortgage lending rules are stringent, making homes unaffordable for many groups and even causing many to say that only the wealthy in Ireland are able to take out a mortgage.
Predatory lending practices in the United States had led to stricter rules, and recommendations that traditional lenders offer a short-term lending option was made. The recommendation led some top-tier lenders to offer better short-term loan options for borrowers.
While the lending practice is illegal in some states, there are still 27 states where short-term lending practices, with rates that often range from 225% to 300%, remain legal. Nine other states have restrictions on the practice, but the practice is still allowed. Remaining states have all banned the practice due to the rise in bankruptcy rates among borrowers who seek short-term, high-interest loans.
Native American reservations have started to capitalize on the industry, offering such loans online and being able to circumvent the rules that are in place. Reservations have sovereign status, so regulations against the lenders have been less restrictive. Rising complaints against lenders has led to monitoring, even in reservations, to help curb lending practices which target consumers that have little-to-no means of repaying the loan.
Author: Jacob Maslow
