Debt collectors want bigger role in bounce loan collection
Debt collectors in the UK are pushing the government to give them a bigger role in collecting overdue loans from its £ 44bn business bailout program, as the Treasury faces growing questions over the way to minimize taxpayer losses of the plan.
The government has provided banks with a 100% guarantee to encourage them to lend quickly to small businesses during the height of the first wave of the coronavirus pandemic last spring. The rebound loan program, which has since lent to more than 1.4 million SMEs, was seen as critical to save thousands of businesses from collapse.
But successive blockages combined with widespread fraud mean that up to 60% of borrowers are should default on their loans, according to the expenditure watchdog, the National Audit Office.
The pressure exerted by debt collectors highlights the difficult choices the government faces as to how rigorously it should prosecute troubled borrowers.
“It’s a delicate balance to strike: you have to support these SMEs, but at the same time you have to care about taxpayers,” said Chris Leslie, CEO of the Credit Services Association (CSA), the trade body representing the collections industry.
“We are talking about the difference between getting 15p in the pound and 30p in the pound [on defaulted loans] – when you see the magnitude of that, it’s a big chunk of taxpayers’ money. That’s why we’re trying to get them to invest now to save for the longer term, ”Leslie said.
The banks that made the loans will have the initial responsibility to collect all outstanding debts, and the UK Finance industry group is trying to to coordinate efforts across the industry. However, lenders will be able to claim the government guarantee after going through “proper collection processes”, leaving the treasury responsible for anything the banks fail to collect.
In a report to be released on Thursday, the CSA will urge the government to work with debt collectors to prepare for a second collection cycle and start engaging with borrowers alongside banks even before collateral is activated. The report estimates that early and sensitive communication with borrowers would increase total collections by up to £ 6 billion.
Mr Leslie said the debt collection industry – which is regulated by the Financial Conduct Authority – has a better record of treating borrowers fairly than the public sector, which has been criticized for its blunt tactics with those who fall behind on payments such as counseling. tax.
A 2018 NAO report acknowledged that “the government lags behind the retail lending industry in following good debt management practices.”
“We want to encourage the Treasury to go for a more sensitive, engaged approach rather than the kind of approach taken by boards,” Leslie said.
While debt specialists are putting forward their ethical credentials, the crisis also represents a potential windfall for the sector. London-based specialist Arrow Global, for example, closed a record number of debt service contracts in 2020, and the companies are also working with banks and UK Finance on the first round of rebounding loan collections.
The Treasury said it had made it easier for companies to repay rebound loans with measures such as allowing them to extend the term from six to ten years, but stressed that this would help minimize losses.
“Our support programs have helped provide a lifeline for businesses of all sizes across the UK, protecting millions of jobs and ensuring they survive the epidemic. We will continue to work closely with lenders on program implementation and ensure businesses are fully supported. “