PM defends Farepak customers’ rights, as Northern Rock borrows another £3 million

19 October 2007
Gordon Brown this week drew attention to the significant gap between the compensation promised to customers of the Christmas hamper company Farepak which went bust last year, compared to that which has been guaranteed to Northern Rock’s customers.

The issue of Farepak was raised at the Prime Minister’s Question Time in what marks the one year anniversary of the company’s demise, when its 150,000 customers lost £40 million of their Christmas savings and have been promised just 5p out of every £1 in compensation – a situation which Mr Brown said was unacceptable.

Connections have been drawn between those affected by the collapse of Farepak and the Northern Rock customers who have received guarantees regarding their investments from the Financial Services Authority. The PM has raised hopes of receiving more sufficient compensation for those who had Christmas 2006 ruined by losing their money.

This also comes in the same week that Northern Rock – the UK’s fifth biggest mortgage lender – has borrowed another £3million from the Bank of England, illustrating a further decline in its stability and confirming that its funding issues remain acute as its debt continues to increase.

Northern Rock customers clamoured to withdraw their cash in the days following announcements that the bank was in crisis, amounting to £3 billion being hastily taken out by panicked customers over a period of just three days – a luxury not afforded to Farepak’s savers. Furthermore, the Treasury has granted ISA customers reinvestment privileges even if they have already deposited the maximum £3,000 this year.

Correlatively, the Building Society Association has announced that savings accounts deposits for September swelled by a record £2.8 billion, much of which is thought to have been recently snatched from the sinking ship.

Adrian Coles, Director-General of the BSA, commented: “The September net receipts figure represents the highest monthly inflow that building societies have ever experienced. This is more than double the amount deposited in August, nearly three times the amount deposited in September last year, and nearly £1billion higher than the previous record. It is likely that a significant proportion of the inflow is due to withdrawals from Northern Rock bank being redeposited in building societies.”

The Council of Mortgage Lenders also recognised a correlation between Northern Rock and a 12 per cent drop in lending for September. Michael Coogan, Director General at CML, said: “We have been expecting a slowdown in monthly lending levels in line with interest rate rises. In the coming months, we expect to see monthly lending levels dip below their 2006 levels for the first time this year as rate effects are exacerbated by the recent liquidity problems in the mortgage market.”

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