Bounce Back Loans Not Enforceable?

Predictions that up to 40% of Government-backed Bounce Back Loans will default, but it may be worse, we don't think ANY are legally enforceable. 

In late April 2020, Chancellor Rishi Sunak announced the launch of the Bounce Back Loan Scheme to fund businesses through the Covid-19 lockdown. The Government said that it would stand as total guarantor for businesses that borrowed money from banks. Businesses could borrow up to £50,000 or 25% of their turnover - whichever was the lowest.

Whether or not this was the right thing to do is not something that we want to go into here. We are going to look at whether or not the loans are even enforceable, and if anything will ever be repaid back. To do this, we will need to go all the way back to 2014.

In 2014, The FCA took over credit regulated duties from the Office of Fair Trading. They went all hammer time on lenders and before you know it lenders were having to pay compensation to borrowers for lending them money without first doing affordability checks. Some of you may have noticed that Wonga, Quick Quid and a host of other lenders are no longer around. This is because it is claimed that they didn't do affordability checks, customers complained, fines, refunds and compensation was paid. Claims were too numerous, loans weren't enforceable and lenders went bankrupt. 

Fast forward to 2020 and the Government has done exactly the same thing as those lenders did, it has asked the banks to lend money without doing any affordability checks. If these loans were not enforceable when Wonga and Quick Quid did it, how can it be right that it is ok when the Government does the exact same thing? When did the Government start to act like they were above the law?

This brings us to our next point, the Government isn't the lender when it comes to the BBLS, the banks are. The Government is just the Guarantor. As far as we know, The FCA has not changed the rules regarding exemptions to affordability tests. If someone complains about these loans, will The FCA and FOS turn a blind eye or will they enforce their own rules and fine the bank? According to the rules, these loans are not enforceable if they were being handed out by the likes of us. Why should BBLS loans be any different?

If the letter of the law and regulations are followed, not only are the loans not enforceable, the banks would be fined and have to pay compensation. If borrowers do complain, is the Government could end up also carrying the liability for the £650 fee per complaint to the Financial Ombudsman Service, or will the banks have to pay that? This could get very messy.

A final note, The FCA seems to have just deleted many pages from its guide on how lenders should deal with affordability checks. Nothing to see here, please move along.