10th December 2014
Around 41,000 Northern Rock borrowers could stand to receive thousands of pounds in compensation following a High Court ruling.
State owned Northern Rock Asset Management (NRAM), which holds many of the legacy mortgages from the failed bank, may have to refund £258 million in interest payments to customers who received letters that were incorrectly worded unless the ruling is overturned.
The borrowers are those who took out Northern Rock’s controversial Together Mortgage, which comprised a mortgage of up to 95% of the value of their home and an unsecured loan of up to £30,000.
NRAM has already had to pay out £270 million in 2012 to refund interest payments after the bank left out mandatory disclosures in customer letters.
The case today relates to the period between 1999 and 2008, when a similar error was made in documentation for loans of £25,000 to £30,000.
The bank failed to set out the initial loan details on the customers’ subsequent statements, as required by the Consumer Credit Act 1974.
As loans of more than £25,000 are not covered by the Act, NRAM had argued that it should not have to pay compensation, but the court found that in a separate error NRAM had mistakenly stated that loans of this size were covered by the Act and therefore customers had been led to believe they had this protection.
NRAM, part of UK Asset Resolution, brought the test case against itself to determine whether or not to pay compensation, after receiving 277 customer complaints.
UKAR chief executive Richard Banks says: “We are disappointed by the decision because no detriment has been suffered by customers.
“We are now considering the impact of the judgment and taking legal advice on whether to appeal. Customers do not need to act at this stage. If any redress becomes due, we will write to all those affected to advise on next steps.”