Northern Rock to pay out compensation for the Together Mortgage

wotsthat

Maybe they should have been allowed to go bust. Northern Rock - too big to fail?

It's a tiny amount of money but at least it would be the problem of whoever picked up the mortgage book. It seems extremely generous to me to make these payouts but state owned organisations don't tend to worry about spending other people's money.

Graham_Devon

michaels wrote: »

I was wondering how it is decided how much compensation should be paid for paperwork errors where the customer has suffered no detriment. Obviously a banking arrangement is asymmetric and thus the banks should be expected to get it right but if the damages awarded are essentially punitive then surely they should be fines paid to the govt rather than compensation to customers who suffered no loss?

This appears to be based on the fact that the wording in the mortgages was wrong. Either something was missing, or was defined the wrong way...basically the small print stuff.

It appears lenders cannot then charge interest if the wording was not up to scratch. It really does appear in this case that the issue was very minor.

The payments are for interest charged over the period that the writing was incorrect.

If the articles are correct, we could see a lot more of this type of stuff happening. It's already happened to Tesco where again, no one lost anything or were effected in any way. But cheques are landing on doormats.

Linton

wotsthat wrote: »

Maybe they should have been allowed to go bust. Northern Rock - too big to fail?

It's a tiny amount of money but at least it would be the problem of whoever picked up the mortgage book. It seems extremely generous to me to make these payouts but state owned organisations don't tend to worry about spending other people's money.

NR was also a bank holding people money, possibly life savings. There would seem to me to be a serious risk that one bank going bust would cause a run on all other banks. Its never happened so we dont know but how long would it be before the £85K guarantee would be put onto effect? Perhaps people would (or would fear they would) be left penniless for months whilst things were sorted out.

NR did in many effects go bust - the staff lost their jobs, the government took it over cheaply and steadily wound it down. The mortgage book was taken over by a new company and is being sold off. Catastrophically going bust would have meant that anybody NR owed money to (eg other banks) would have suffered with unknown knock-on effects.

IronWolf

Back on topic, am I right in thinking all these loans are going to have been effectively interest free?

No way the taxpayer should be paying for things like this, people who took these loans knew exactly what they were doing, and to effectively gift them £6k because NR made a tiny error in the terms is ridiculous.

Graham_Devon

IronWolf wrote: »

Back on topic, am I right in thinking all these loans are going to have been effectively interest free?

No way the taxpayer should be paying for things like this, people who took these loans knew exactly what they were doing, and to effectively gift them £6k because NR made a tiny error in the terms is ridiculous.

Yep, interest free from the day they took them, up until this judgement I'd guess.

Anyone that still has the mortgage will have a credit put on it.

Anyone who has moved away will receive a cheque.

Just wondering how many other establishments this may well effect. Hopefully, one I'm signed up with

Graham_Devon

It seems 152,000 customers have already had refunds for the very same thing.

This is regarding an additional 41,000 who took unsecured loans on top of their mortgage for £25,000+. Seems this higher amount stuff was done under a different type of loan.

Anyone who had a loan under this amount (152,000 people) have already received redress.

michaels

Graham_Devon wrote: »

This appears to be based on the fact that the working in the mortgages was wrong. Either something was missing, or was defined the wrong way...basically the small print stuff.

It appears lenders cannot then charge interest if the wording was not up to scratch. It really does appear in this case that the issue was very minor.

The payments are for interest charged over the period that the writing was incorrect.

If the articles are correct, we could see a lot more of this type of stuff happening. It's already happened to Tesco where again, no one lost anything or were effected in any way. But cheques are landing on doormats.

Thanks Graham.

Any good thought on how to resolve such issues? In the past remedies for contract failures used to reflect actual harm suffered. Given the difference in resources of banks and borrowers you can see the attraction of making it very costly for banks to make mistakes and yet it also seems the remedies are disproportionate and may create a whole new industry of forensic contract examination in order for arbitrary groups to get big pay-outs at the expense of bank shareholders and taxpayers.

Plus it means now that there are huge extra compliance costs for financial companies, I recently opened savings accounts for my kids, this seemed to require 40 minutes of my time, and advisors time and a compliance officers time and for half a forest to die just so each of my kids could save less than £100...crazy.

IronWolf

What is actually deemed to be wrong with these loans?

It's a great deal, you get an unsecured loan at the same interest rate as a secured loan (mortgage), if anything Northern Rock were far too generous on these loans.

purch

The small print said that the loans were covered by the Consumer Credit Act 1974, but as they were over £ 25K they were not.

If they had been covered, then NR should have done a load of things that they didn't do, but as they weren't covered then they didn't have to, but because they said they were covered then they should have done, even though they shouldn't have had to in the first place :eek:

antrobus

IronWolf wrote: »

What is actually deemed to be wrong with these loans?......

Nothing in substance. I believe that it is one of these technical breaches of the CCA - the rules changed so that lenders had to send out an annual statement within a specific time limit, and failure to do so meant that they couldn't charge interest. A number of lenders were caught out by this, and were obliged to make refunds of the interest.

The situation with NR was more complicated in that it had advanced a number of unsecured loans under the Together brand which were over the £25k limit that applied and therefore were not subject to the CCA. However NR had mistakenly told people that the loans were covered by the CCA. Ergo there was some doubt as to whether or not these people were eligible. Hence NR arranged for a test case that has now been decided.

There is a long running thread about the issue.
https://forums.moneysavingexpert.com/discussion/4342285