This reverses a ruling last December over the wording of documents sent out by the bank, which meant £258m would have been paid in refunded interest.
The decision rests on information requirements laid out in the 2007 Consumer Credit Act, which should have applied to the Together product, which was part mortgage, part secured loan of up to £30,000. As the lender failed to disclose this information, the borrower has no liability to pay the interest or default sum, which meant the decision in December would have led to a £258m compensation pay out split between 41,000 borrowers.
Northern Rock, which was nationalised in February 2008 and is still wholly owned by the Treasury as Northern Rock Asset Management (NRAM), appealed the original decision to compensate borrowers but is paying the legal costs for both sides of the test case.
Since nationalisation it has not undertaken any new lending, but holds a substantial book of historic residential mortgages and unsecured lending, which it is encouraging to remortgage away.
The Together mortgage allowed customers to borrow up to 95% of the value of their home on a secured basis, and in addition take out a fixed sum unsecured loan of up to 30% of the value of the property, capped at £30,000. The interest rate on the secured and unsecured parts of the loan was the same.
Yesterday’s ruling is likely to set a precedent for the 41,000 other borrowers denying them compensation.
Previously, NRAM received 277 complaints from borrowers who entered into unsecured (Together) loan agreements.
Newcastle-based Northern Rock was nationalised in 2008 following its near collapse at the onset of the global credit crunch and in 2010 was split into a “good” and a “bad’ bank, with the Northern Rock name transferred to the good bank.
In late 2011 Virgin Money bought the good part of the business, and discontinued the Northern Rock name.