The use of debt collectors could enable the government to recover an extra £6bn from Bounce Back Loans (BBLs), a new report has found.
The Credit Services Association (CSA) – the voice of the UK debt collection and debt purchase sectors – has used its latest report to call on the Treasury and the British Business Bank to use established, professional collections agencies for BBL recoveries.
It added that the government should implement a consistent policy towards collections as quickly as possible and adopt best practice on forbearance and standards of engagement.
The BBL scheme, which delivers 100 per cent government-backed loans of up to £50,000 to smaller businesses, has been the most popular of all the government-backed lending schemes, deploying more than £43bn to over 1.4 million firms.
However, there have been many concerns around fraud and the possibility of a high level of defaults from the scheme. The Office for Budget Responsibility has estimated that taxpayers could be left with a £29.5bn bill from bad debts caused by defaults in the Covid-19 support schemes.
The CSA report also recommended the creation of a BBL ‘Engagement Scheme’ which would cost around £10m per year over the next three years.
They said this could yield anything between £3bn to £6bn in additional returns to the Exchequer.
The authors said the investment should be seen in the context of the reported £42m which was spent on a recent Financial Conduct Authority campaign about the deadline for claims against miss-sold PPI.
“When such vast sums of taxpayer money have been lent to business in the expectation it will eventually be repaid, ministers have a responsibility to pursue an effective – as well as a sensitive – approach to recovering that debt,” said Chris Leslie, chief executive of the CSA and co-author of the report.
“Engaging in dialogue with and understanding the circumstances of those small- and medium-sized enterprises who have taken out bounce back loans will take particular skills.
“If the Treasury adopts the approach we recommend, not only can it tailor forbearance according to need, it can recoup perhaps £6bn more than it might do otherwise – saving the equivalent of the annual NHS hospital building budget for the taxpayer.”
“Our support schemes have helped provide a lifeline to businesses of all sizes across the UK, protecting millions of jobs and ensuring they survive the outbreak,” a spokesperson from the Treasury said.
“We will continue to work closely with lenders on the delivery of the schemes and ensuring businesses are fully supported.”
Funding Circle is the only peer-to-peer lending platform which has been accredited to offer BBLs to date.
In June, the platform said it had bolstered its collection and recoveries teams and agreed payment plans with delinquent borrowers, as it looked to mitigate the risks of the coronavirus pandemic on investor portfolios.
Funding Circle has been contacted for comment.