The payments will see 41,000 former Northern Rock customers have an average of £6,300 knocked off their outstanding loans and are likely to prompt other banks to double-check whether other past loans were incorrectly worded.

Reuters

London

More than 40,000 British borrowers are in line to get thousands of pounds in compensation after London’s High Court ruled against former bank Northern Rock in a test case over the wording of past loan documents.

The court said the bank might have to pay out about £258mn ($405mn), which the British taxpayer would have to cover because the government now owns the part of the bank that made the loans.

The payments will see 41,000 former Northern Rock customers have an average of £6,300 knocked off their outstanding loans and are likely to prompt other banks and the regulator to double-check whether other past loans were incorrectly worded.

The High Court ruling released on Wednesday was against Northern Rock Asset Management (NRAM), the “bad bank” of Northern Rock that was nationalised in 2008 and is now part of UK Asset Resolution (UKAR) — a state-run “zombie bank” that does not take on new business.

“We are now considering the impact of the judgment and taking legal advice on whether to appeal,” UKAR’s chief executive Richard Banks said. “Customers do not need to act at this stage. If any redress becomes due, we will write to all those affected to advise on next steps,” he added.

UKAR said it had set aside £261mn to compensate customers.

NRAM brought the legal claim against itself, hoping to secure a legally binding judgment that customers who had taken loans of £25,000 or more under the terms of previous “Together” mortgages were not owed compensation.

“Together” mortgages were offered by Northern Rock, allowing customers to take an unsecured loan of up to 30,000 pounds alongside their mortgage, and repay the “top-up” loan at the same rate as the mortgage.

The offer proved attractive, but the High Court judge said documents related to unsecured loans of between 25,000 and 30,000 pounds taken out between 1999 and 2008 were incorrect and that customers should indeed be paid back interest and fees.

Two years ago, NRAM already had to set aside about 270mn pounds to repay customers who had borrowed less than £25,000, because their documents were wrongly worded under the terms of the Consumer Credit Act.