Northern Rock lending blunder lands taxpayers with £270m bill
Nationalised bank’s failure to follow new rules means borrowers are entitled to refund
Andrew Grice has been Political Editor of The Independent since 1998. He was previously Political Editor of The Sunday Times, where he worked for 10 years, and he has been a Westminster-based journalist since 1982. His column, Inside Politics, appears in The Independent each Saturday.
Tuesday 11 December 2012
Taxpayers are to fund a £270m “Christmas bonus” for about 152,000 customers of Northern Rock because of a blunder in which they were not given the right information about their outstanding loans.
Customers will be refunded an average of £1,770 and the state must foot the bill because the mistake was made by the so-called “bad bank” still owned by the Government. The “good” part was sold to Sir Richard Branson’s Virgin Money last year.
The compensation bill will increase public borrowing in the current financial year and was not included in the figures announced by George Osborne in his autumn statement last week. Luckily for the Chancellor, the setback does not alter his surprise announcement that borrowing will fall this year, which wrong-footed Labour.
After Northern Rock was nationalised in 2008 at the start of the financial crisis, the Consumer Credit Act, which covers unsecured loans under £25,000, was changed to ensure that borrowers were informed of three figures in loan statements — the original sum borrowed, the opening balance and the closing balance. Northern Rock Asset Management (NRAM) did not include the original sum.
Although customers did not lose money as a result, they are entitled to a windfall because they were not properly informed under the Act. Most of those affected used a “Together” scheme combining a mortgage and a loan.
Lord Oakeshott, the Liberal Democrats’ former Treasury spokesman, said last night: “Every taxpayer is being stung for £10 because of gross negligence by the Treasury and UKFI [the body which holds the Government’s stake in bailed out banks]. No one was overcharged but they were fast asleep so we must all pay out. Their arrogance and incompetence was a toxic mix and they couldn’t run a whelk stall. This is a classic example of nationalising the banks’ losses and privatising the profits. Richard Branson won’t be paying out.”
Ministers pointed the finger at the regulatory regime introduced by the previous Labour Government, saying the mistake was another sign of the problems exposed by the financial crisis. The Treasury is not aware of the blunder being repeated by other banks but an independent inquiry will be conducted by the consultants Deloitte into how it happened and what lessons can be learned.
Brooks Newmark, a Conservative MP, told the Commons: “This is yet another example where the previous Government's total failure to regulate the banking system properly has cost this country dearly.”
Mr Osborne told MPs: “Some customers with certain types of mainly unsecured personal loans were not given all the mandatory information in their statements which they were entitled to by law. As a result, interest payments on these loans are not legally enforceable.”
Ed Balls, the shadow Chancellor, accused Mr Osborne of trying to “slip out” the news during Commons questions rather than making a proper statement ”to avoid any proper scrutiny or questioning“ from MPs.
Sajid Javid, the Economic Secretary to the Treasury, said in a written Commons statement that refunds would be paid into customers' accounts. “Where redress is required, this will be made by correcting a customer's account balance to reverse the consequences of them being charged any interest over the period in which the documentation is non-compliant,” he said. “There is no need for customers to take any action at this time.”
The problem was discovered by UK Asset Resolution (UKAR), a new public body which owns NRAM and the nationalised mortgages of Bradford & Bingley.
Richard Banks, UKAR’s chief executive, said: “NRAM is acting in accordance with its legal responsibilities and we are determined to do the right thing for customers and the taxpayer. We will be writing to all customers who are affected and advising them on next steps. We have not received any complaints or claims as a result of this matter and as far as we are aware, it has not resulted in financial loss for customers.”
- 1 James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns aged 27
- 3 Cilla Black defends Cliff Richard: 'I am positive that the allegations are without foundation'
- 4 Nicki Minaj finally releases predictable 'Anaconda' video
- 5 James Foley 'beheading': Met police warn public watching murder video could be criminal offence
James Foley 'beheaded': PM cuts holiday short for emergency meeting on British response to latest Isis atrocity
Michael Brown shooting: Police shoot and kill second young black man near Ferguson
ALS ice bucket challenge co-founder Corey Griffin drowns aged 27
James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
Iraq crisis: Islamic State's message to America - 'We will drown you all in blood'
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again. It would be immoral to bring it into the world'
Scottish Independence Referendum: Salmond described as 'arrogant, ambitious and dishonest' by Scottish women
£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...
Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...
Negotiable: Harrington Starr: C# .NET Software Developer (Client-Side, SQL, VB...
£40000 - £60000 per annum + Benefits + Bonus: Harrington Starr: C# Developer (...