- By Tony Williams -
Barclays hit the headlines yesterday, with a £26m fine from the financial regulator (FCA) for unfair treatment of customers. Today, banks will undoubtedly be scrambling to ensure their own credit repayment processes are up to scratch.
The issues at Barclays pre-date the pandemic. The FCA say that Barclays knew about many of the problems with systems and controls as early as 2013 and failed to resolve them until late 2018[1]. But the reported failings - understanding repayment difficulties, and accounting for circumstances such as recent bereavement[2] - could not be more relevant now.
In response to the pandemic the UK government initially introduced Coronavirus Business Interruption Loans (CBILS) and then in May 2020 the Bounce Back Loan Scheme (BBLS). Within a couple of months over a million loan applications had been approved[3] and by November £42.2bn had been[4] lent to UK businesses facing pressure during the pandemic.
As early as May 2020 banks expressed concerns that up to 50% of BBLS borrowers could eventually default on the debt[5]. The loans are 100% government backed, with a guarantee on both the capital and 2.5% interest, but the responsibility and cost of collections lies with the banks.
The BBLS specified that no repayments were due for the first year which means that banks will face a sudden peak in necessary collections activity in May 2021. With banks already wary of the negative PR Bounce Back Loan collections could cause, it is essential that they ensure that they are well prepared when this happens.
Banks have been told to follow normal collections processes, but the government backed nature of the loans makes it hard for banks to know how best to proceed longer term. The government have not yet said at what point banks will be able to call on the state backed guarantee. 2021 is likely to add additional unknowns to the problem. With the pandemic and economic climate likely to impact demand, cycles of recovery, and how many businesses have closed before the collections even start.
Despite current uncertainty banks face an a very real and urgent need to ensure that financial assistance teams are working effectively to provide the level of service required. The fine to Barclays only serves to highlight the need to ensure fair treatment and good customer service.
Banks are worried about the challenges and impact on teams having to deal with the unknown demand. They will need to deal with defaults, extensions and providing customers with adequate time to pay back their loans. They are looking to how technology can help, as well as considering how they might scale departments, outsource, or even offshore the increased workload.
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References [1] Barclays fined £26m for poor treatment of customers - BBC News [2] Barclays fined £26m for poor treatment of customers - BBC News [3] Government business loan support totals £48.35 billion (ensors.co.uk) [4] Bounce back loans ‘will lose up to £26bn’ | Business | The Times [5] UK banks warn 40%-50% of ‘bounce back’ borrowers will default | Financial Times (ft.com)