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Northern Rock to repay £270m due to paperwork error

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More than 150,000 customers at the state-owned Northern Rock will have their interest payments on loans handed back to them due to paperwork errors, the Treasury has admitted.

 

In a fiasco that is expected to add to Britain’s deficit, Northern Rock Asset Management said it will repay £270m to customers who borrowed around £25,000. The stand to receive a windfall of £1,775 each. George Osborne, the Chancellor, told MPs that due to administrative errors made in 2008, loan agreements for around 152,000 Northern Rock borrowers were invalid. “As a result, interest payments on these loans are not legally enforceable,” he said.

 

Most of the customers concerned borrowed less than £25,000, Mr Osborne told MPs. Northern Rock “will be writing to all existing customers in the next few days. There is no need for customers to take any action at this time,” the Treasury said. Refunds will be paid directly into customers’ accounts. Under the terms of the Consumer Credit Act, lenders have to print on all statements made to customer the size of the loan they were originally offered. In 2008, after Northern Rock was nationalised and divided into the “good” and “bad” banks, the state-owned part failed to ensure these statements were made. In the absence of that mandatory information, “borrowers are not liable for interest”, the Treasury said.

 

The cost will be borne by UK Asset Resolution (UKAR), the body that holds the loan books of Northern Rock and Bradford & Bingley. “Northern Rock Asset Management is acting in accordance with its legal responsibilities and we are determined to do the right thing for customers and the taxpayer,” said Richard Banks, UKAR chief executive.

Link: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9738285/Northern-Rock-to-repay-270m-due-to-paperwork-error.html


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