The UK’s largest lenders are preparing to collect billions of pounds in repayments of emergency loans amid rising concerns that firms could be strongarmed into making repayments.
While banks are busy assigning hundreds of employees to be the driving force behind the recovery efforts, bosses have conducted regular talks with the Treasury to finalise plans. Barclays, HSBC, Lloyds and NatWest have all begun sending letters to customers warning them that repayments will be expected soon.
Under the umbrella of a number of emergency support schemes created by Chancellor Rishi Sunak and guaranteed by the taxpayer, banks have paid out in excess of £75bn to 1.6m firms. Businesses which were granted an interest-free period of one year are due to start making repayments in as few as two weeks’ time.
However, sources say banks could have no choice but to adopt heavy-handed methods and risk a damaging repeat of the financial crisis when firms in difficulties came up against high-pressure debt collection tactics.
Small business owners have warned that lenders may feel entitled to ‘intimidate, bully and threaten’ borrowers after a court ruling last month that the banks do not need to act with ‘reasonable care and skill’ when recovering debts. Banking sources have said they are aware that a considerable number of SMEs may still be facing severe financial difficulties.
Banks to offer variety of repayment methods
One senior banker has warned that small firms, many of which have taken out loans of £50,000 or less, may even refuse to make repayments in the mistaken assumption that the money received was a grant or debt that will be written off.
It is thought the Treasury is expecting the banks to be ‘quite hard’ in their efforts to recover the money. Although it is understood that banks must exhaust all other options before expecting the taxpayer to repay the money.
The banker said the current view is that the repayments will have to be pursued rigorously, otherwise the borrowers may refuse to co-operate and think the banks will forget about them. It will become awkward, he said, if it goes right down to the wire. In any case, the Treasury has not ruled out the possibility of taking legal action against defaulters.
Though banks are spending millions of pounds on debt recovery, they are required to offer a range of mitigating measures before calling in the debt. HSBC, for one, has redirected 400 staff to its collections team to discuss with borrowers procedures such as payment holidays, interest-only repayment periods and extending loan terms.
Barclays is to send letters to inform customers of the measures already in place and Metro Bank has hired new staff for a unit to support borrowers. NatWest will launch a new website dedicated to those struggling with repayments and has said it will give all customers three months’ notice before payments are due to be received.
Banks wield imbalance of power
The ruling by the Court of Appeal that banks do not have a duty of care to borrowers who fail to repay follows a heated legal battle between RBS and property developer Oliver Morley. He claimed bankers forced him to hand over his business in 2010 after failing to repay a £75m loan. He contended that RBS had breached a duty to provide banking services with reasonable care and skill because it had violated its internal policies in negotiations.
Nevertheless, the High Court ruled that bankers need only comply with regulatory standards, not internal guidelines. The Court of Appeal subsequently said the bank had a duty of care when providing the loan as a banking service, but not in the recovery process.
Morley commented that he fully respected the decisions handed down by the court but was concerned about the law. His case, he said, highlighted the fact that small firms receive no protection at all from the legal system when banks ‘come knocking’. Banks, he added, can intimidate, bully and threaten their borrowers wielding the vast imbalance of power they have at their disposal.