The Financial Conduct Authority (FCA) is calling on banks to treat SMEs fairly when recovering loan payments and debts amid the cost of living crisis.
In a review of collection practices, the FCA said lenders were not treating SMEs fairly when trying to agree on payment plans, and that bank policy did not adequately identify vulnerable customers.
The review covered unincorporated SME customers with £25,000 or less of debt, including from bounce-back loans.
The FCA says it wants the whole banking sector to take action and meet its expectations when dealing with struggling SMEs.
Sheldon Mills, executive director for consumers and competition at the FCA, said:
"People across the country will be affected by the rising cost of living - this includes small businesses. We were disappointed to find repeated instances of these customers not being treated fairly by banks when they're struggling.
"We expect the whole sector to act quickly to improve this. We will take action if problems continue."
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