Watchdog asks for help with Debt Collection guidance

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The Financial conduct authority has asked banks, lenders and debt collectors for advice on how to deal with the fall out from emergency Covid-19 loans given out during the pandemic.

The FCA is preparing new guidance on how they can help businesses that took out emergency loans during the COVID-19 crisis. The guidance is intended to assist those that may struggle to make repayments.

The Financial Conduct Authority said on Friday that it is consulting on new guidance that will instruct finance firms on how to offer “pay as you grow” repayment plans — arrangements that give businesses more time to pay off loans and which offer businesses smaller individual repayments.

Any flexible repayment arrangements must comply with consumer protection law, the regulator said.

“The FCA has rules to support the fair treatment of customers through the collections and recoveries process,” the regulator said. “It is important for firms to understand our expectations in advance of collecting debts.”

The regulator said the guidance would not change existing rules about debt collection. But it will advise banks and lenders on how to manage repayment of loans linked to the COVID-19 crisis without violating consumer rights.

Banks and lenders have been allowed to offer pay-as-you-grow arrangements to businesses that have taken out emergency COVID-19 loans since the Chancellor of the Exchequer, Rishi Sunak, announced the program in September.

The Chancellor said that lenders could offer these flexible arrangements to companies that had borrowed money under the so-called bounce back loan scheme, an emergency lending fund set up to help businesses in the chaos of the global pandemic.

The loans, which have been available since April, allowed UK companies to borrow 25% of their turnover up to the amount £50,000 The loans would also be interest-free for the first year.

The financial sector proposed a debt restructuring program in July for the £35 billion in government-backed emergency coronavirus loans that will start becoming repayable next March.

The proposal by TheCityUK, a financial industry trade group — which it calls the U.K. Recovery Corporation — is designed to prevent as many as 780,000 vulnerable enterprises from defaulting on unsustainable debt from COVID-19 loans granted during the nationwide shutdown.

The FCA warned in June that lenders should prepare for a surge in businesses that cannot pay back loans taken out under the emergency loan scheme. The FCA Debt Collection guidance initiative is designed to help struggling businesses.

The government had already announced the business interruption loan scheme in March, which offered loans of up to £5 million for businesses with turnover of £45 million or less. That was extended to larger companies, which could secure loans of up to £25 million, while businesses with turnover of more than £250 million could gain loans of up to £50 million.

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