AN administrative blunder by the state-owned part of collapsed bank Northern Rock will cost the taxpayer £270m, it emerged last night.
Some 152,000 customers of Newcastle-based Northern Rock Asset Management (NRAM) will receive compensation of £1,775 each after inaccurate paperwork was sent to regulated loan borrowers dating back to 2008.
Speaking at Treasury questions yesterday, Chancellor George Osborne revealed customers with loans below £25,000 were affected and blamed “an error originating in 2008 when Northern Rock was in public ownership”.
The error saw loan statements sent to customers which did not clearly spell out how much they originally borrowed.
The Treasury said these letters were not compliant with the strict wording set out in the Consumer Credit Act (CCA), which states that letters were supposed to contain three figures – the original amount borrowed, the opening balance and the closing balance.
Even though it appears no customers lost out due to the oversight, the £270m bill is the amount of interest paid by people during from October 2008 when the law changed.
It was unearthed by UK Asset Resolution (UKAR), which now owns NRAM, which said the £270m will be paid back to customers from its profits.
Tim Newman from UKAR said: “We are a business that generates surplus funds and, in this instance, we have enough profit generated this year that can be used to pay back £270m, and we’re still expected to post profits after that.”
He added: “This won’t affect our customers or the fundamentals of the business.”
UKAR undertook an internal investigation and consulted legal counsel, the Financial Services Authority, the Office of Fair Trading, UK Financial Investments and the Treasury.
The Treasury added that it had no objections to UKAR’s proposed approach of refunding customers.
However, Treasury economic secretary Sajid Javid said in a statement to Parliament that the refund is likely to increase public sector net borrowing for 2012/2013.