Banks urge the Treasury to be lenient over Covid debts
BANKS have warned the Govern- ment to take a lenient approach to recovering coronavirus debts and have urged it to resist chasing small business owners through the courts where possible.
They have proposed contacting customers in default on two or three occasions before writing the loan off, leaving the taxpayer to cover the bill.
Sources said banks were keen to avoid a rerun of the aftermath of the financial crisis, when bankers were accused of destroying small business for profit.
Banks have loaned out £46.3 billion through the Government’s schemes, much of which has been underwritten by the Treasury.
The proposals are designed to minimise the administrative burden on the banks. But sources said Treasury officials are keen to claw back as much money as possible.
Banks are discussing what support measures they could put in place before chasing businesses for loan repayments. It is hoped that all of the banks will adopt the same approach for customers.
The Treasury is considering a separate proposal, put forward by lobby group TheCityUK, which is also backed by the bankers. It suggests that businesses could repay the loan as a tax on their profits.
Banks are particularly concerned about t he Bounce Back Loan Scheme, which handed out loans of up to £50,000 with minimal checks. Borrowers have taken out £31.7 billion under the scheme.
Banks fear the BBLS will be the source of the highest number of defaults, and they do not want to embark on fraught legal disputes to recover the funds. The rows would hit many small businesses including drivers and hairdressers.
The budget watchdog has estimated that losses across all of the schemes could hit £33.7 billion.
It is thought that officials are at an early stage of discussions and could adopt a combination of ideas currently under discussion.
The Treasury said: ‘We continue to work closely with businesses, lenders and other stakeholders on delivery and design to ensure we can both support businesses and protect taxpayers.’
Bankers faced fierce criticism for their treatment of small business after the 2008 crash. In one of the most notorious cases, a toxic unit at RBS was accused of wrecking family firms for profit. Small business owners alleged that the bank deliberately destroyed companies so it could seize their assets. One memo between employees said: ‘Sometimes you need to let customers hang themselves.’
Other small business owners have complained that they were ignored when they tried to raise the alarm about a massive fraud perpetrated by bankers at HBOS Reading between 2003 and 2007.
Six bankers and advisers were convicted of fraud in 2017 and sentenced to a total of almost 50 years in jail. The bankers wrecked businesses and spent the profits on sex parties and lavish cruises.