Unaffordable debt wasn’t the only thing keeping Eugene Costello awake at night. He was beset by guilt at what he had done to his best friend, Adam.
Eugene, 55, had fallen on hard times and taken out a £5,500 loan, for which Adam agreed to act as guarantor.
When Eugene could not keep up the repayments, Adam found himself in the lender’s firing line.
‘The loan company was on to him with aggressive payday lending-style tactics — really high-pressured — asking him to pay what I owed them,’ says writer Eugene. ‘It was excruciatingly embarrassing and it cost me his friendship.’
Ironic, then, that friendship — love, even — was the driving force behind the business model of the subprime loan company Amigo, which means ‘friend’ in Spanish.
High life: James Benamor with his family in Paris on holiday
Enjoying the pool in the Seychelles
Over the course of 15 years until the start of the pandemic, Amigo offered loans of up to £10,000 at a hefty 49.9 per cent annual rate of interest to hundreds of thousands of people whose credit score was in tatters.
The one condition? That they could bring someone to the table — a friend, father, mother, husband, wife, brother or sister — who would promise to pay the loan if the borrower defaulted.
It was a lending model built on family ties. Who can say ‘no’ to a loved one struggling to make ends meet?
By 2018, when it floated on the stock market, Bournemouth-based Amigo was valued at £1.3 billion.
That made its founder, 45-year-old James Benamor — who once described his younger self on Channel 4’s The Secret Millionaire as a drug-taking petty criminal — fabulously wealthy.
After the flotation, he cashed in £305 million of his shares but still kept a 61 per cent stake in the company.
The Amigo dream, however, lies in tatters, with the company now valued at less than 1 per cent of its heyday value.
The company faced a slow downward spiral after being forced to stop lending in 2020.
Financial authorities had realised it had been handing out loans to almost anyone, with only the barest consideration given to whether borrowers or their guarantors could afford them.
But the company was cleared to start trading again last year. Then, last week, it dodged a £73 million penalty for its past behaviour.
The lending watchdog, the Financial Conduct Authority (FCA), says it had to waive the fine because Amigo is in the process of paying redress to customers.
In simple terms, the penalty would have decimated an already pitiful compensation plan for victims of mis-selling.
To stay afloat, Amigo now needs £45 million from investors. And it’s fair to say that it’s finding friends hard to come by.
Some observers are describing Amigo’s plight as an embarrassment for Benamor, the Poole Grammar School-educated son of Tunisian immigrants, but it’s unlikely he sees it that way.
When I asked him if he felt embarrassed, he said he couldn’t discuss matters related to the company — he left the board and sold the rest of his shares in 2020.
But why should he be concerned? He is still mind-bogglingly wealthy, and if any of the thousands of broken people who lost the love of family members and friends because of the guarantor model were to look at his Instagram account, they wouldn’t find him embarrassed at all.
Climb: James Benamor with partner Marina Goland on top of Mount Kenya
Amigo offered loans of up to £10,000 at a hefty 49.9% annual rate of interest to hundreds of thousands of people whose credit score was in tatters
Instead, they would discover carefree pictures of him and his family skiing in France, scuba diving in Sri Lanka, watching England at Wembley, or climbing Mount Kenya. During the pandemic, they would have seen him hiking in Sumatra and relaxing in Singapore and Thailand.
In 2008 the ultra-rich businessman appeared on Channel 4’s The Secret Millionaire, going undercover in Manchester’s Moss Side to meet young people struggling with issues such as addiction and gang violence.
‘James’ posed as a youth worker making a documentary about their lives before revealing his true identity at the end of the programme and signing a series of checks for local groups and organisations.
But despite this benevolent phase, Benamor’s wealth continued to spiral and by 2018, he was officially a billionaire.
The windfall fuels an ultra-glamorous existence that has, in recent years, been chronicled via Facebook, Instagram and Twitter accounts showcasing endless exotic holidays and extravagant family outings.
‘It hardly seems fair, does it, after the heartache and financial ruin Amigo left in its wake?’ says Eugene, who fell into Amigo’s clutches in 2014 after a painful divorce and health problems left him broke.
He had been offered a position as editor of a travel magazine in London but needed the relatively small sum to keep him going until the job started.
‘I reckoned I’d need the loan only for a couple of months, then I’d pay it back, so the high interest rate wasn’t something I was overly concerned about,’ he says. ‘I was having a hard time and Adam [not his real name] had very kindly put me up.
‘I asked if he’d be my guarantor just for a few months, and he said he would. But then the job fell through. The travel magazine was never launched.’
Unable to pay off the loan quickly as planned, Eugene was facing 60 monthly payments of £217. The final debt ballooned to more than £13,000, more than double the original sum.
‘There were at least three occasions when I couldn’t pay and they’d be straight on to Adam, using harsh techniques, telling him that his credit rating would be affected if he didn’t pay what I owed,’ says Eugene. ‘It was terrible for him and it was having a damaging effect on my mental wellbeing.
‘I looked into it later and found some horrendous stories — people saying they were becoming suicidal because of the pressures on them and their families.’
Eugene, who now lives in Valencia, Spain, was eventually able to pay Adam back. In 2018, he wrote about his experiences in a newspaper. Some time later, Amigo wrote off the last £2,000 of his debt. It still got back twice what it had loaned him.
Benamor, a father of eight, is understood to have personally ordered Eugene’s debt to be cancelled after hearing that he was raising money for charity following the death of his brother, Dermot — rather than when he drew attention to it in the press.
The gesture demonstrated a complex side to the entrepreneur, who is also involved in charity fundraising, including for Julia’s House, a children’s hospice in Dorset.
He lives nearby in a six-bedroom mansion, bought for £2 million in 2013, with partner Marina Goland and their three children.
When he purchased the property, the 7,000 sq ft ‘substantial residence of immense charm and character’ came with a new 55ft kitchen plus planning permission for a pool, gym, games room, sauna and home cinema.
A mile away, his previous partner, Catriona Patterson, lives with their five children.
Benamor is now chief executive of Bournemouth-based Richmond Group, which he founded in 1999.
According to its website, it has half a billion pounds in assets and lends between £1 million and £25 million to cash-strapped companies and start-ups.
While debt crisis charities and Amigo ‘victims’ have criticised Benamor’s original guarantor model — some even calling it loan-sharking — he justified it as doing his customers a favour.
In a blog post after he left the Amigo board in 2020, he wrote: ‘We believed there was a gap in the market for people who had a low credit score but whose friends and family knew they were trustworthy. I had been one of those people myself just a few years earlier when I started my first company.’
In another post, he said he wanted Amigo to be a ‘consumer champion’. I asked him how he squared that with charging customers 49.9 per cent APR — an extraordinary rate for what is effectively a secured loan, given that it is backed by a guarantor.
He compared the model to credit unions — but credit unions are non-profit organisations owned by their members, so they are effectively lending to one another. And they are more rigorous in checking whether their customers can afford their loans — Amigo clearly wasn’t.
On the brink: Amigo now needs £45m from investors to stay afloat – and it’s fair to say that it’s finding friends hard to come by
Sara Williams, a former debt adviser who runs the blog Debt Camel, has helped hundreds of people who were mis-sold Amigo loans to reclaim their interest. ‘For James Benamor to compare Amigo to credit unions is unreasonable,’ she says.
‘Credit unions can legally charge a maximum of 42 per cent interest (12 per cent in Northern Ireland) but they frequently charge a lot less — under 15 per cent is common.
‘And just as important, a loan from a credit union comes without the added mental pressure of trying to protect your guarantor.
‘If something goes wrong in your life, it’s easy to include a credit union loan in a debt management plan or get them written off in insolvency.
‘However, these debt solutions are ruled out by most guarantor loan borrowers because they don’t want their father, sister or friend — their guarantor — to have to pay Amigo on their behalf as they would be included in the debt.
‘Instead, borrowers will borrow more or get behind with bills so they can keep paying Amigo and their guarantor won’t be asked to pay.’
For that reason, she points out that guarantor loans often have a low default rate.
‘It isn’t because Amigo or other lenders have done a good job of checking the loan was affordable. Amigo’s affordability checks were the worst I have ever seen.
Williams is calling for a ban on the ‘payday’ guarantor model.
As for Benamor, he blames moving regulatory goalposts, fraudulent customers and a corrupt board for his company’s downfall.
In one blog post, he claims the FCA inspected Amigo and its methods in 2016 and found ‘no major issues’. Instead, he laments that the Financial Ombudsman Service moved the goalposts on irresponsible lending in 2019.
‘Previously, a commitment to a feasible budget plan based on a combination of verified and self-certified data was sufficient,’ he says.
‘Now, irrespective of the budget plan, any indication that the customer had been living beyond their means (or might do in future) became a reason to retrospectively refund all interest payments as far back as 2010.’
Yet the company’s willingness to lend to people who couldn’t afford to borrow was at the heart of its downfall.
In the two years after Amigo floated, the ombudsman received thousands of complaints from people believing they had been tricked into taking loans they couldn’t afford.
Last year, a court ordered Amigo to pay back interest of £112 million to customers who were mis-sold loans.
In a 2021 Twitter post, Benamor wrote: ‘Amigo’s situation was caused by a handful of fraudulent customers trying their luck, and a corrupt board attempting to cash in short-term.
That, plus an unchecked regulator and predatory claims management companies brought the company to its knees.’ In other words, it was everybody’s else’s fault.
There are thousands of claims from what Benamor calls ‘fraudulent customers’ but I received details of one.
We won’t name the victim here, but she was a single mother on benefits who was persuaded by a friend to be a guarantor.
Out of love, loyalty or a sense of duty, she said she would. But it seems clear she should never have been approved as a guarantor.
On her application, details of which I have seen, she told an assessor her monthly income — purely from benefits — was £683.
The monthly repayments were £355 over 60 months (a total of £21,300). She listed the following monthly outgoings, and Amigo accepted her word: council tax, £5; gas, £20; electricity, £20; water, £40; phone, £20; and food, £60.
Perhaps she was confused and meant £60 a week for food? There was no listing for clothing, transport or miscellaneous sums, and she wasn’t asked for more details.
It left her, supposedly, with £518 a month to be guarantor for someone else’s £355-a-month loan. The loan was granted, then the ‘friend’ disappeared, leaving her legally responsible for a £9,000 debt.
When she contacted Amigo to complain that the loan was ‘unaffordable’ — the word that triggers an investigation — her complaint was turned down.
Asked to comment on this case, an spokesman said: ‘Amigo has changed. The company has an entirely new executive team, a new culture, new lending policies and a new customer-centric approach. Some loans made several years ago would not be provided today.’
Amigo has been allowed to lend since last October with a new guarantor offer called ‘RewardRate’, that charges 39.9 per cent APR. It admitted to potential investors last month that it hasn’t had many takers.
It won’t give details of how many complaints it is dealing with, what the average refund (to be paid later this year) will be, or what the total is.
If it doesn’t get the £45 million it needs to keep trading by May, a spokesman says the company would neither go bust nor go into administration, as it is currently solvent.
It just doesn’t have enough cash to be a big lender. It would simply ‘wind down in an orderly fashion’ and customers whose claims have been accepted would still get compensation.
It would be tempting to say good riddance to firms such as Amigo, but some in the lending sector warn that without them, people with poor credit would be driven into the arms of illegal loan sharks.
Eugene Costello doesn’t want to see the back of Amigo, saying: ‘I’d take no delight in the job losses if they disappeared. But it was a legally and ethically dubious structure from the get-go.
‘I’d rather they continued to work with those who need help but charged rates closer to those of other High Street lenders, which are typically below 10 per cent. Then everyone would be a winner.’
Which would be very civilised. You might even say friendly.
Read more at DailyMail.co.uk