Debt companies may collect COVID-19 loans

UK banks may enlist debt collection firms to recover billions of pounds of state-supported COVID-19 loans.

Several UK banks have engaged in talks with the UK Government about shifting the collection of bounce back loans to debt collection agencies on the grounds that the tasks will be too much of a burden to manage independently.

Government officials have contacted debt collection companies including Arrow Global to assess whether they could undertake the repayment efforts, for which they would receive a fee. Unpaid debts would return to the banks, which would then claim on the state guarantee attached to the loans.

Bank bosses believe the move is necessary due to the huge amount of COVID-19 loans and the anticipated problems with repayments.

Last week, the National Audit Office revealed that UK taxpayers could lose as much as £26 billion due to the bounce back loans scheme. 

Bankers believe that if they attempt to recover the loans themselves, each lender would have to hire hundreds of staff and build dedicated centres to deal with the issue. Banks want to agree an approach with Government for dealing with the loans in the hope of avoiding a repeat of the RBS Global Restructuring Group scandal after the 2008 financial crisis, which led to investigations and criticism over the treatment of small businesses.

A senior banking source told The Times that lenders wanted to agree a uniform “light touch” approach to the recovery process. The source said this needed to be discussed with the government “because what we don’t want to do is invalidate the guarantee in any way”.

Banks are considering whether a new agency could manage the repayment process or if the loans could be moved to a state-run bad bank. Establishing a panel of debt collectors that sign up to a code of practice but with lenders retaining responsibility for customer treatment is seen as a more workable idea by some.

However, there are concerns about how many customers will be in vulnerable groups due to the expected rise in unemployment and COVID-19 cases.

Many bankers believe a row is brewing between banks and the government over the bounce-back loans, which carry a 100% taxpayer guarantee that lenders can claim only once they have tried to recover the money. The collection process is yet to be finalised, despite the loans being set up five months ago.

The first repayments for the loans are due in May 2021. 

A Treasury spokesman pointed to measures announced last month to make it easier to repay the loans, such as extending the repayment term from six to ten years, switching to interest-only or pausing entirely for six months.