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Asset Resolution (Consumer Credit Act)

Volume 589: debated on Thursday 11 December 2014

In February 2008, under the previous Government, Northern Rock was nationalised due to the financial crisis. In January 2010 the previous Government restructured the activities of Northern Rock between Northern Rock plc, a newly created company which was subsequently sold to Virgin Money in 2011, and the existing company, which was renamed Northern Rock (Asset Management) (NRAM). The balance sheet of NRAM is managed by UK Asset Resolution (UKAR).

In 2012, UKAR identified certain Consumer Credit Act (CCA) regulated loans in the NRAM portfolio where the annual statements and other notices were not compliant with CCA requirements. The CCA regulations only applied to loans of £25,000 or less. The period of non-compliance originates from changes to the CCA implemented in 2008, before the separation of NRAM and Northern Rock plc in January 2010. The Economic Secretary to the Treasury at the time this non-compliance was identified (Sajid Javid) informed Parliament, and UKAR has remediated the interest paid and other charges fully to affected customers for the period of non-compliance. This is another example of the significant cost to taxpayers of the failure of the previous regulatory regime.

After these mistakes were discovered, UKAR’s board commissioned Deloitte to conduct an independent enquiry into the specific circumstances of the issue, and any implications for UKAR’s broader internal procedures and controls. The report can be found here:

In 2012, UKAR also discovered that incorrect documentation had been sent to certain customers with loans of more than £25,000. These errors also originate from when changes were implemented to the CCA in 2008, before the separation of NRAM and Northern Rock plc in January 2010. While these loans fell outside of the scope of the CCA, UKAR commenced declaratory proceedings in the High Court to determine whether customers who took out such loans are entitled to the same or similar rights and remedies as those customers who took out loans of £25,000 or less that were regulated under the CCA. This action was taken in order to provide clarity to UKAR and to its customers, and details of the proceedings, including an estimate of the cost of remediation, were published in the Treasury’s annual report and accounts for 2013-2014.

The High Court has declared that the defendants to the proceedings are contractually entitled to the rights and remedies applicable to a regulated agreements under the CCA (2008).

Accordingly, NRAM was in breach of its obligations by issuing documentation that did not comply with the CCA (2008), and by not re-crediting the interest payments and default sums paid during the period of non-compliance. UKAR, and UK Financial Investments, on behalf of the Treasury, will now carefully consider legal advice to establish whether an appeal should be pursued. UKAR have estimated the cost of remediating affected customers to be £261 million plus any future interest accruing on these accounts before remediation is made. The cost of any future interest amounts to approximately £3 million per month.

UKAR has performed well, repaying more than £12 billion of Government loans and actively managing the assets with the goal of ensuring value for money for the taxpayer. The OBR has forecast that UKAR will have a positive impact reducing both public sector net borrowing and public sector net debt in the current fiscal year. This would be true even if remediation costs were paid this fiscal year.

UKAR will confirm whether an appeal will be pursued in due course. There is no need for customers to take any action at this time. Further details for customers can be found on the NRAM website: