201504 CM April

LEGAL COLUMN
NORTHERN ROCK’S
CONFUSING LOANS
Northern Rock purported to incorporate the provisions of the
Consumer Credit Act 1974 into some loans, which were not strictly
regulated consumer credit agreements. Peter Walker reviews a recent
case to see if the other borrowers could claim the same recompense.
IN the first half of the 20th century
Robert Benchley, a US humourist,
would not trust a bank prepared to lend
money to him, such ‘a poor risk’ he
thought, but what turned out to be poor
decisions by financiers, such as Northern
Rock, were part of this century’s greater
financial problems. A High Court judge in
NRAM plc v McAdam and Hartley [2014]
EWHC 4174 (Comm) considered some of
Northern Rock’s problems in the light of the
Consumer Credit Act 1974.
The background to the litigation was
that, after the nationalisation of Northern
Rock, the business was split, and NRAM
plc took over the pre-existing mortgages
together with the pre-existing unsecured
loan accounts. It has a new owner, UK
Asset Resolution Limited, which has
another subsidiary company owning
the closed mortgage books of Bradford
and Bingley. Taxpayers in the UK will be
interested in the outcome, because the
government has lent a lot of money to
resolve the financial problems of those two
financial institutions.
The new companies deal with the
transactions created by their predecessors,
including certain unsecured credit
agreements entered into by Northern
Rock. Some borrowers took out secured
loans of up to nine percent of the value
of their homes and further unsecured
loans of up to 30 percent of that value.
Those unsecured loans were capped at
£30,000.
The two defendants in the NRAM case
borrowed that full amount, but section 8(2)
(since repealed by the Consumer Credit
Act 2006 effective on 6 April 2008) of the
Consumer Credit Act 1974 only created
regulated consumer credit agreements
when the credit was less than £25,000.
Regulated agreements have to comply
with provisions such as those relating
to disclosure of information, and from 1
October 2008 creditors have to supply
periodic statements (s 77A of the 1974 Act).
44 April 2015 www.cicm.com
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