Couple's £384,000 debt wiped out

A JUDGE’S decision to wipe out a couple’s debt of £384,000 which had spiralled out of control from an original loan of less than £6,000 is expected to have far-reaching implications for consumers and lenders alike, personal finance experts said yesterday.

Tony and Michelle Meadows, from Southport, Merseyside, faced losing their home after they were taken to court for failing to keep up repayments on the loan which had an annual percentage rate of 34.9 per cent.

But Judge Nigel Howarth, sitting at Liverpool County Court yesterday dismissed the claim brought by London North Securities.

"I know an extortionate agreement when I see one and this is one of them," he told the court.

"The defendants are not indebted to the claimant pursuant to the agreement and the legal charges do stand redeemed," he added.

Mr and Mrs Meadows, who have two children, took out the loan for 5,750 in 1989 to pay for home improvements. It was designed for people with poor credit ratings.

But 15 years later it had grown into a vast debt and the couple faced the prospect of having to hand over their 200,000 home in part payment.

The case centred on a number of factors relating to the original loan agreement. The small print of the loan revealed that the couple would be charged a "compounded" interest rate if they ever fell into arrears.

Essentially this meant that the money lenders were charging 34.9 per cent interest on the arrears as well as on the repayments, which soon resulted in the debt growing to an enormous amount.

Judge Howarth said: "Where the rate concerned is as high as 34.9 per cent it seems to me that the combination of factors is so potentially exorbitant that it is grossly so and does grossly contravene the ordinary principles of fair dealing."

Debt advisers said the judge’s decision to wipe the slate clean should herald a new approach in the way that lenders go about advertising and marketing loans - and the levels of interest they are allowed to place on loans.

"I am delighted at this ruling for the couple concerned because they would never have been able to pay this kind of debt off," said Yvonne Gallacher of Money Advice Scotland.

"Of course people need to be responsible when taking out loans, but we need to see the lenders making it more clear what will happen if you don’t keep up with the payments," she said.

"We need the equivalent to a health warning on loans which would include ‘what-if’ scenarios if the interest begins to accumulate."

The Meadows argued that they only wanted an original loan of 2,000 but were convinced by the loan company to borrow more money - to pay off arrears they had built up on their mortgage and to purchase an insurance policy they did not want. Speaking outside court, Mr Meadows said he felt like "a ton of weight has been lifted off me".

The claimants have been granted leave to appeal against the judgment.