UK government does not have to pay out £261m to former Norther Rock customers after winning court appeal

James Nickerson
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Customers were not insured under the Consumer Credit Act (Source: Getty)

The UK government has been spared from paying out £261m in compensation to some former customers of Northern Rock, after winning a court appeal.

The appeal focused on the wording of 41,000 past loans of the formerly bailed-out bank.

Northern Rock Asset Management (NRAM), part of the state-run “bad bank” running down old loans of Northern Rock, said the UK Court of Appeal ruled in its favour.

The organisation said in a statement:

NRAM notes the judgement made today by the Court of Appeal confirming that customers who took out unsecured loans of more than £25,000 under agreements that incorrectly stated these loans were regulated under the Consumer Credit Act (CCA), are not entitled to the same rights and remedies as those customers who took out loans that were regulated under the CCA.

For loans taken out before 6 April 2008, CCA only applies where the amount we agreed to lend you (the amount of credit) was £25,000 or less.

This comes after the High Court ruled in December that borrowers who were loaned more than £25,000 alongside their mortgage should have the same security as those customers who took out smaller loans.

Read more: Northern Rock to repay £261m: Thousands of customers to receive over £6,000 each

NRAM is the asset holding and management company which split from Northern Rock in 2010 after the bank was nationalised in 2008 in the wake of the financial crisis. Virgin Money now owns the "good" part of Northern Rock.

This is a blow to former customers who were holding Northern Rock’s “Together Mortgage,” taken out between 1999 and April 2008.

Read more: Britain’s bad bank sells off £2.7bn of loans

If the decision had not been overturned, the British taxpayer would have effectively paid the bill as NRAM is part of the UK Asset Resolution, the body that controls state-owned financial assets including shares in RBS and Lloyds.

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