Bad debt, Bounce Back Loans, Business, Business Loans, COVID-19, Small Business Banking

Banks set to scrap plans for Bounce Back Loan debt collection agency

Banks set to scrap plans for Bounce Back Loan debt collection agency
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 Man holding out empty wallet, Covid-19 virus, Bounce Back Loan debt concept

Empty wallet: the National Audit Office estimates £26bn of Bounce Back Loans will never be repaid

High street banks are set to handle overdue Bounce Back Loan debt repayments themselves, abandoning plans for an agency to deal with emergency Covid-19 loans.

The banking industry has decided that a collection agency would merely complicate the business of dealing with Bounce Back Loan debt that has gone bad, according to the Times.

The Government itself estimates that nearly two thirds of Bounce Back Loans may never be repaid, costing the Treasury £26bn.

>See also: Banks may call in debt collectors to recoup unpaid Bounce Back Loans

UK Finance, the banking trade body, ran a feasibility study last year on creating a vehicle which would oversee debt collection on behalf of lenders who took part in the Bounce Back Loan scheme.

The mooted agency was intended to relieve pressure on banks worried about their ability to collect Bounce Back Loan debt, given the scale of the £45bn scheme. The banking industry was hoping that a single industry could ensure consistent treatment of small business borrowers and avoid a repeat of the SME lending scandals after the 2008 financial crisis, shielding individual lenders from criticism.

Although plans for a formal collection agency have been all but scrapped, talks about a looser agreement to common standards in debt recover continue, the Times understands.

>See also: Nearly two thirds of Bounce Back Loans could go bad, says government

And the Government has provided “recoveries protocols”, which set its expectations for how banks should behave while recovering loans. The state British Business Bank, which administers the Bounce Back Loan scheme, will also monitor collection activity.

UK Finance told the newspaper: “The detailed design of a collective approach to debt recovery is still in development. This would provide a consistent approach to the handling of outstanding Bounce Back Loans; however individual lenders may want to take their own view to recoveries.”

Further reading on Bounce Back Loan debt

What coronavirus business support is available from the government?

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