Main Street banks are poised to handle the overdue debt repayments of the Bounce Back loan on their own, abandoning plans for an agency to process emergency Covid-19 loans.
The banking industry has decided that a collection agency will only make it harder to process the debt from the Bounce Back loan 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 Use Debt Collectors to Collect Unpaid Bounce Loans
UK Finance, the banking trade body, conducted a feasibility study last year on creating a vehicle that would oversee debt collection on behalf of lenders who participated in the Bounce Back loan program.
The mentioned agency was intended to relieve pressure on banks worried about their ability to collect debt on the Bounce Back loan, given the scale of the £ 45 billion program. The banking sector hoped that a single sector could ensure consistent treatment of small business borrowers and avoid a repeat of SME lending scandals after the 2008 financial crisis, by shielding individual lenders from criticism.
Although plans for a formal collection agency have all but been scrapped, discussions on a looser agreement on common standards for debt collection continue, the Times understand.
> See also: Almost Two-Thirds of Bounce Back Loans Could Go Wrong, Government Says
And the government has provided “collection protocols,” which set out its expectations of how banks should behave when collecting loans. The British Business Bank, which administers the Bounce Back loan program, will also monitor collection activity.
UK Finance told the newspaper: “The detailed design of a collective approach to debt collection is still under development. This would provide a consistent approach to dealing with outstanding rebound loans; However, individual lenders may want to take their own perspective on collections.
Further Reading on Bounce Back Loan Debt
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