Bank debt - sales

Some retail banks have begun the sale of customers’ debts in order to clear their balance sheets of underperforming loans. The effect of this has been to put the customer in a position where it is faced with a new borrower/lender relationship with an entity that may not be a retail bank and may be based abroad – such as a private equity organisation or a hedge fund. Customers often object because they move from dealing with a local bank manager, with whom they and their business may have had a long relationship, to an entity that is unknown to them.

Whether the customer has any legal rights to object depends principally upon the loan documents. If they give the bank the absolute right to transfer the debt, then the bank can do this even without consulting with the customer and the first the customer may know about this is a communication from the bank to say that it has happened. In other cases, the loan documents may be of more help to the customer if, for instance, they specify that the loan can only be transferred within the bank’s group, or to another lender. In some cases, the bank may be under an obligation to consult with the customer prior to the transfer taking place.

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