FORMER Northern Rock customers are in line for compensation pay-outs over incorrect paperwork in loan deals, the Treasury said.
Some consumers who took out regulated loan deals will share £270 million set aside for repaying interest charges after the bank broke strict wording of contracts.
The Rock was nationalised in 2008 at the height of the financial crisis.
Speaking at Treasury questions yesterday, Chancellor George Osborne said 152,000 customers who had loans below £25,000 were affected and blamed “an error originating in 2008 when Northern Rock was in public ownership”.
He said: “Some customers with types of mainly unsecured personal loans were not given all the mandatory information in their statements which they were entitled to by law.
“As a result, interest payments on these loans are not legally enforceable.”
Economic Secretary Sajid Javid said in a written parliamentary statement: “UK Asset Resolution (UKAR) has identified certain Consumer Credit Act (CCA) regulated loans in the Northern Rock Asset Management (NRAM) portfolio where the loan documentation is not compliant with CCA requirements.
“In selected letters and customer account statements, certain paragraphs of mandatory wording were written incorrectly and compulsory information about the amount of credit was not included in the statements.”
He added: “The cost to NRAM of remediating the interest charges on affected accounts is estimated at £270 million.”
Mr Javid said refunds would be paid into customers’ accounts.
“Where redress is required, this will be made by correcting a customer’s account balance,” he said.
Customers affected will receive letters from UKAR before Christmas and, the government said, there was no need for customers to “take any action”.
Conservative MP Brooks Newmark (Braintree) told the Commons: “This is yet another example where the previous government’s total failure to regulate the banking system properly has cost this country dearly.”
Mr Osborne said an inquiry had been launched and he would update MPs when more information was available.
The Chancellor was criticised by Commons Speaker John Bercow for the way parliament was informed about the issue.
He accepted Mr Osborne was “intending to be helpful” by revealing details of the error at the dispatch box, but said “it could have been better done”.
Shadow chancellor Ed Balls accused Mr Osborne of trying to “slip out news” during topical questions in the House.
Mr Balls raised a point of order with the Speaker and claimed the Chancellor’s tactic was designed “to avoid any proper scrutiny or questioning” from Labour MPs.
Mr Osborne said a written statement had been laid in Parliament before the question time session began.