Via Yahoo Finance

The banking industry is bracing for a surge in complaints linked to the COVID-19 crisis.

The head of a new service set up to resolve disputes between businesses and banks told Yahoo Finance UK the rapid growth in lending over the last few months would lead to an increase in complaints in months and years ahead.

“With the COVID crisis and the loans — particularly the CBILs [coronavirus business interruption loans] that have been taken up — just the quantity of those, with the best will of the world things will go wrong,” Lewis Shand-Smith said this week.

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Shand-Smith is the chair of the Business Banking Resolution Service (BBRS), a new ombudsman-like service set up to resolve disputes between SMEs and lenders. The service was set up in response to the legacy of the 2008 financial crisis, which led to a surge in disputes between business-owners and banks. All seven of the UK’s biggest business lenders stand behind the service, as well as several key SME groups.

“There’s always been an expectation that the majority, a very large majority of our cases, would be the historic cases,” Shand-Smith said.

But with the onset of the pandemic, Shand-Smith said: “We are expecting a bigger volume. We’re going to have to really plan ahead and understand what’s going on.”

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Banks have lent businesses almost £40bn since March under various government-backed schemes. While the state offers partial or full guarantees on these loans, banks must still try to collect on them before getting any cash from the government. It has led to fears that banks will come into conflict with business owners when they are eventually forced to try and collect.

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A significant proportion of loans are also expected to go bad. Charles Randell, the chair of the Financial Conduct Authority (FCA), said in a speech earlier this week: “It’s an inescapable fact that some of the debt that businesses have incurred in the crisis will turn out to be unaffordable.”

Randell said the FCA was working closely with the Financial Ombudsman Service and the BBRS to “ensure that there is capacity to deal with the volumes [of complaints] we may see.” He stressed the banking industry must avoid a repeat of 2008 when it comes to dealing with business customers.

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The BBRS has not fully launched yet and is still in its pilot stage, seeking input from small and medium-sized businesses on how its process works. However, Shand-Smith said the organisation would be fully up and running by autumn.

“Partly driven by the COVID crisis, it is very much the case that the Treasury and the FCA very much want it there by the autumn,” he said. “The expectation is that the BBRS needs to be ready to take complaints and disputes.”