Court frees Merseyside couple from loan debt that soared from ?5,750 to ?384,000

A Merseyside couple were set free from their financial chains yesterday when a judge ruled that they did not have to pay off a £384,000 debt which had grown remorselessly from an original loan of just £5,750.

Tony and Michelle Meadows advised all borrowers to study the small print before they signed forms for any loan deal. "I feel like a ton of weight has been lifted off me," said Mr Meadows. "We're absolutely delighted. You can see the effect this has had on me - I used to have dark hair."

The couple, from Southport, Merseyside, faced losing their £200,000 home after they were taken to court by London North Securities for failing to keep up with repayments on their loan, which had an APR of 34.9%.

Mr and Mrs Meadows, who had a poor credit record, took out the 15-year loan in 1989 after seeing a newspaper advertisement. The terms ruled that, if they fell into arrears, they would be charged 34.9% interest on those arrears as well as on the basic repayments.

"Where the rate concerned is as high as 34.9%, 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," said Judge Nigel Howarth at the end of the hearing at Liverpool county court. "This is one of the few credit bargains which is extortionate."

Earlier, the judge said the Meadows had been on "a moving staircase going against them at a speed faster than [they] can run". He added that most people would "gasp to say the least" at the sums involved - the final debt was 67 times the amount borrowed.

The court heard that, even if Mr Meadows - a windscreens salesman who has also worked for the UK-based Starchaser space programme - had made the payments on time, he would still have paid £20,699.21 interest on the original loan.

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.

Mr Meadows had got into financial difficulty after he swapped careers. He left his job working for a jewellers to become a salesman for a golf company, which did not work out and resulted in Mr Meadows becoming jobless for a short time.

Judge Howarth said the company was imposing a condition on the Meadows which was "Hobson's Choice".

"If they wanted the loan at all they had to have their mortgage arrears paid off which increased the amount they wanted by more than £2,000," he said. The extra money was, in reality, a charge and therefore the loan had been mis-stated and was unenforceable.

"It is plain in my judgment that the reality of the situation is that the Meadows were very obviously desperate, as many people who seek non-status loans are, to pay for home improvements," he said. "I have no doubt that the agreement is deficient and this in reality was part of the cost of the credit. The agreement is bad and cannot be cured and that is the end."

During the hearing, Paul Brant, the Meadows' barrister, suggested that statements sent to the couple by the loan company were misleading. The "repayment record cards" showed details of the payment of arrears but not of the actual amount outstanding. In November 2001 the couple received a statement suggesting they were £328 in credit on their arrears payments when the outstanding balance was more than £140,000.

Mrs Meadows, a childminder, told the court she had "no idea" how much interest was mounting. "Tony and I had no idea interest was accruing at such an extortionate rate."

After the hearing, Mr Meadows said: "We have kept this to ourselves for most of the time and it has been incredibly hard, but we brought the fight to them and we won.

"We have got two girls and the worst thing for me was watching them go without things like holidays. It wasn't a wanton spending spree we went on back then, it was just something we had to do at the time. I would advise people thinking of taking a loan to read the small print very carefully."

Mrs Meadows added: "I can't take it in at the moment. I'm very happy."

Judge Howarth granted London North Securities leave to appeal.