Northern Rock Asset Management Plc will repay 270 million pounds ($435 million) to customers who took out loans dating back to 2008 because the nationalized lender failed to include mandatory wording in statements.
U.K. Chancellor of the Exchequer George Osborne told Parliament in London today that interest payments on loans to about 152,000 Northern Rock borrowers were not enforceable in law. He will launch a “full inquiry” into how the bank omitted the correct wording in statements, primarily on non-secured loan agreements.
Northern Rock was nationalized in February 2008 after suffering the first run on a U.K. bank in more than a century. Virgin Money agreed to buy part of the bank in November 2011 after it had been divided, leaving the taxpayer with stakes in Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc and other mortgage assets, including NRAM.
“Affected customers are now entitled to redress, and will also be sent revised documentation that contains all of the compulsory account information and precise wording required,” NRAM said in a statement.
The cost will be borne by U.K. Asset Resolution Ltd., the state-owned organization that took on the loan books of NRAM and Bradford & Bingley Plc, and is likely to increase public-sector net borrowing in the current fiscal year, Treasury minister Sajid Javid said in a written statement to Parliament.
Northern Rock won’t need extra capital from the Treasury to finance the payout. The lender recorded a 305 million-pound profit in the first half and “is expected to remain profitable in 2012,” the Treasury statement said. The probe will be carried out by Deloitte.
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