Skip to main content

Financial Services

Volume 555: debated on Tuesday 11 December 2012

UK Asset Resolution (UKAR) has identified certain Consumer Credit Act (CCA) regulated loans in the Northern Rock (Asset Management) (NRAM) portfolio where the loan documentation is not compliant with CCA requirements. In selected letters and customer account statements, certain paragraphs of mandatory wording were written incorrectly and compulsory information about the amount of credit was not included in the statements. The CCA provides that a lender is restricted in how it can enforce a debt and borrowers are not liable for interest, over the period during which the lender has not provided the specified information. The period of non-compliance originates from changes to the CCA implemented in 2008 before the separation of NRAM and Northern Rock plc.

UKAR has undertaken an internal investigation and has consulted with legal counsel, the Financial Services Authority (FSA), the Office of Fair Trading (OFT), UK Financial Investments (UKFI) and the Treasury. Following this, the UKAR board has recommended making proactive restitution to affected NRAM customers in receipt of non-compliant statements and default notices relating to CCA-regulated loans. Based on discussions with UKFI, the Treasury has no objections to UKAR’s proposed approach and UKAR will issue the corrected documentation and take steps to remediate interest and other charges to affected customers. 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. UKAR will contact potentially affected customers in writing with further information. NRAM 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.

Separately, the UKAR board has asked Deloitte to conduct an independent enquiry into the specific circumstances of the issue and to make recommendations on potential enhancements to the associated processes and controls.

The cost to NRAM of remediating the interest charges on affected accounts is estimated at £270 million. As a result of the reclassification of UKAR by the Office of National Statistics this year, UKAR was included within the OBR forecast for public sector net borrowing (PSNB) in 2012-13 in the autumn statement. The costs to UKAR from remediation were not included in this forecast. The impact of these costs on the public finances is a decision for the independent Office for National Statistics. This is likely to increase public sector net borrowing in 2012-13. However it remains the case that borrowing will continue to fall in that year.

UKAR has confirmed that NRA has the financial resources to make the remediation. NRAM’s interim financial results for the six months to June 2012 show a statutory profit before taxation of £305 million and NRAM is expected to remain profitable in 2012.

The remediation is not expected to delay materially the ultimate timing of the repayment of the NRAM Government funding, which stands at £19.6 billion as at June 2012. The Treasury continues to estimate that it will fully recover all the taxpayer support provided to NRAM.