Northern Rock settlement figure - help

quisait

Hi Folks

In the mail today I received a letter from Northern Rock with regards to a complaint that I have with them. My complaint is that the settlement figure seems to be grossly unfair considering what I have paid to them, i.e. extra payments.

Do I have any comeback on this?

Here is what they wrote as a "final" answer.

NR Loans, in line with other financial institues, are controlled by the terms of the consumer credit act (rebate on early settlement) regulations. This means that for all loans established prior to 31 May 2005, we use the Rule of 78 to determine the value of the settlement figure for your unsecure loan.

The application of this rule means that a greater proportion of interest is paid in the early months of the loan while the balance is at its highest. The Office of Fair Trading has not deemed the Rule of 78 unfair. There has been no change to the way in which interest is applied to your loan, or the way in which we calculate your settlement figure. I am sorry you were incorrectly advised that there had been during the telephone conversation.

The amount of rebate is calculated to an actuarial formula prescribed by the Regulations. Under the Regulations the settlement amount assumes a settlement date 58 days from your request for early settlement of the loan of terms of more than a year.

Am I finished on this? Is there anyway foward?

From my understanding the Rule of 78 HAS been deemed by the OFT.

Thanks for any help on this.

Rafter

quisait,

If you borrow £5000 @ 10% APR over 5 years, in simple terms you will pay £500 in interest in the first year.

After four years of payments you owe about £1000 and will pay £100 in interest.

The interest at the start of the loan is higher than at the end and that is totally fair - you owe more at the start.

The rule of 78 is a way of apportioning the interest over the loan - it is a proxy for the 'actuarial method' which does it more scientifically.

If you want to post back details: Loan amount, number of payments made, length of loan, start date, payment amount and what they have offered you as a settlement then one of us can check their sums.

Also what do you mean by 'extra payments' - some loans will allow you to make overpayments but this doesn't always reduce the interest payable - buried in the small print.

Good luck

R.

quisait

Hi folks

I never did reply back to this with figures etc. Now is the time!

The original loan amount was £20,000.00 over 10 years.
The first payment on the loan was on 25 June 2004.
The APR was 7.94%
Each of the payments on my loan is for £239.16 and is payable on the 25th day of each month. The first payment on the loan was made on 25 June 2004.
Here follows a breakdown of the payments made to my loan with Northern Rock. The dates of the extra payments are the dates that they left my bank account.
26 Jun 2004 to current date: regular monthly payments of £239.16. The payment is taken out on following working day if the 25th is at a weekend. No payments have ever been missed on the loan!
Extra payments
23 Jun 2008: extra payment of £118.29
25 Jul 2008: extra payment of £118.29
19 Aug 2008: extra payment of £236.58
21 Oct 2008: extra payment of £2275.27
27 Nov 2008: extra payment of £118.29
23 Dec 2008: extra payment of £271.17
22 Jan 2009: extra payment of £118.29
20 Feb 2009: extra payment of £118.29 (I don’t have the date that it left my a/c)
25 Mar 2009: extra payment of £818.29 (I don’t have the date that it left my a/c)
24 Apr 2009: extra payment of £218.29
26 May 2009: extra payment of £118.29
25 Jun 2009: extra payment of £118.29
24 Jul 2009: extra payment of £174.29
24 Aug 2009: extra payment of £642.34
22 Sep 2009: extra payment of £703.44
21 Oct 2009: extra payment of £744.73
23 Nov 2009: extra payment of £444.87
22 Dec 2009: extra payment of £317.55
According to the loan payment calculator that I downloaded from http://www.vertex42.com/ the settlement on, or around, the 25 December 2009 should have been roughly £2912.00. However, Northern Rock gave me a figure of £3305.11, which is £393.11 more. I fail to see how, and after paying in so much extra money, why Northern Rock’s settlement figure is way above where I believe it to be.
They have clearly stated in their letter of 11 December 2009 that the Rule of 78 has not been deemed to be unfair by the Office of Fair Trading, which seems to be contradicted by the following link on the OFT website: http://www.oft.gov.uk/shared_oft/reports/consumer_credit/oft192v2.pdf and also here on the Department for Business Innovation and Skills website: http://www.berr.gov.uk/files/file23061.pdf.
To me, the above evidence seems to be damning and Northern Rock are quite clearly being untrue when they state in writing that the Rule of 78 is not unfair.
So, with all the above and the figures, is that enough for someone to give me some advice?
Thanks
Jools

quisait

Hi folks

I'd really appreciate some help on this one. PLEASE!!!