Banks poised to call back billions in Covid loans

Britain’s biggest lenders are gearing up to collect billions of pounds in crisis loans amid rising concerns that firms may be bullied into making repayments.

Banks are allocating hundreds of extra staff to spearhead the recovery efforts and bosses have been in regular talks with the Treasury to finalise plans.

HSBC, NatWest, Barclays and Lloyds have all begun dispatching letters to customers to warn them that repayments will soon be expected.

Banks have handed out more than £75billion to 1.6million firms under a number of emergency support schemes set up by Chancellor Rishi Sunak and backed by the taxpayer.

Businesses were granted an interest-free period of a year and are due to start making repayments in as little as two weeks’ time.

But sources said bankers could be forced to use heavy-handed tactics – and risk a painful repeat of the financial crisis when beleaguered firms faced high-pressure debt collection tactics.

Small business owners warned that lenders may feel entitled to ‘threaten, bully and intimidate’ borrowers after a court last month ruled that they do not need to act with ‘reasonable care and skill’ when recovering debts.

Banking sources said they are aware that some companies may still be facing severe financial difficulties. One senior banker warned that small firms – many of which have loans of £50,000 or less – might even refuse to make repayments because they have mistaken the money for grants or debt that will be written off.

The Treasury is believed to be expecting the banks to be ‘quite hard’ in their recovery efforts. It is understood that banks must exhaust all other options before turning to the taxpayer to recoup the money.

Banks have handed out more than £75billion to 1.6million firms under a number of emergency support schemes set up by Chancellor Rishi Sunak and backed by the taxpayer

The banker said: ‘At the moment the view is you are going to have to pursue [the loans] quite hard, because people might play awkward and think the banks will just forget about it.

‘It will get tricky when you get right down to the wire. And will we go legal on this? [The Treasury] hasn’t ruled it out.’

Banks are spending millions of pounds on debt recovery. They are required to offer a raft of forbearance measures before calling in the debt. HSBC has allocated 400 staff to its collections team to discuss payment holidays, interest-only repayment periods and extending loan terms.

Barclays is sending out letters to inform customers of the measures in place. Metro Bank has hired new staff for a unit to support customers. NatWest will launch a new website dedicated to customers struggling with repayments. It said it will give every customer three months’ notice before payments are expected to be received.

Tory MP Kevin Hollinrake, chair of the All Party Parliamentary Group on Fair Business Banking, said: ‘[If] a business is in default and can’t make ends meet, the bank then needs to be very good at setting out the next steps. I should think most businesses will participate in an orderly wind-down. But firms do now have free dispute resolution in the Business Banking Resolution Service. And hopefully the banks will stay proceedings with a business until the case has been resolved in the BBRS.

‘I think with all of these measures in place, it is far less likely we will see the abuses of the past take place. Banks will now get caught out if they foreclose on someone unfairly or stick them into a restructuring division without notification.’

Tory MP Kevin Hollinrake, chair of the All Party Parliamentary Group on Fair Business Banking

The ruling by the Court of Appeal decided that banks do not have a duty of care to borrowers who fail to repay. The decision came as part of a tense legal battle between RBS and property tycoon Oliver Morley.

Morley claimed bankers forced him to hand over his business in 2010 after he failed to repay a £75million loan. He claimed RBS had breached a duty to provide banking services with reasonable care and skill because it had violated its internal policies in negotiations.

But the High Court ruled that bankers only have to comply with regulatory standards, not internal guidelines. The Court of Appeal later said the bank had a duty of care when providing the loan as a banking service, but not in the recovery process.

Morley said: ‘I fully respect all the decisions handed down by the court. But I am worried about the law. My case highlighted that small firms get no protection whatsoever from our system when banks come knocking. Banks can threaten, bully and intimidate their borrowers using the enormous imbalance of power they have at their disposal.’