Major bank defeated over £250m mistake

Major bank defeated over £250m mistake




Northern Rock will have to compensate 41,000 borrowers who took out personal loans with the bank, a high court ruled. This is estimated to cost the bank around £258 million.

Northern Rock will have to compensate 41,000 borrowers who took out personal loans with the bank, a high court ruled. This is estimated to cost the bank around £258 million.

Between 1999 and March 2008, Northern Rock offered a product called the ‘Together Mortgage’ which allowed borrowers to borrow up to 95 per cent of the value of their home on a secured basis, and in addition, take out a fixed sum unsecured loan of up to 30 per cent of the value of their home capped at £30,000.

The product was very popular as, for so long as the secured loan remained outstanding, interest on the unsecured loan was charged at the same rate as the secured loan, and it was taken up by more than 40,000 people.

The borrowers claimed that, due to a mistake, they were not given all the information in their statements that they were entitled to under Section 77 of the Consumer Credit Act. This failure meant that interest payments on their loans were not legally enforceable and borrowers were not liable for interest relating to a period when a lender has not provided the relevant information.

Northern Rock’s representative defended that the agreement was not regulated and thus, the reference to the Act must be disregarded as inappropriate or immaterial.

However, the court was satisfied that the borrowers were entitled to recover repayments in relation to Section 77 of the act.

Leave a comment