Court ruling highlights the role of protection premiums

It seems almost inconceivable that a couple who took out a £5,750 home improvement loan could end up in court defending their home against a repossession action.

But that's what happened to Merseysiders Tony and Michelle Meadows whose original second mortgage debt spiralled to a massive £384,000 - thanks to 34.9% compound interest plus late payment penalties.

Luckily for the Meadows, the judge threw out the case, saying the loan was "extortionate" and that it "grossly contravenes the ordinary principles of fair dealing."

Amazingly, the Meadows' only asked for £2,000 originally. The balance of £3,750 included a "payment protection policy" they did not want.

The judge, echoing Jobs & Money criticisms of these ultra-expensive policies, says the premiums were a charge and so the APR had been mis-stated, making the loan unforceable.

Few other loans balloon so far and so fast out of control. But as the Department of Trade continues its interminably long look at updating the creaking Consumer Credit Act 1974, the case throws up areas for improvement.

Penalties and insurances are not part of the APR calculation. They should be. Interest rate ceilings must also be reconsidered - even though the DTI previously rejected this after pressure from lenders.

The Meadows did not realise just how big their debt had become. The law urgently needs changing to force fixed rate loan firms to issue annual statements. They don't have to do this now.

The adverts in the back end of tabloid newspapers and which plaster daytime TV ad breaks attract huge numbers of people to take out consolidation and home improvement loans.

The Meadows have been through misery. Now their experience should force change.

Easy money

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If you want to find out about your record, you have to pay them for the data. The postal fee of £2 while low, should be zero. And as for the "added value" services, such as email alerts about your credit record for £49.99, the phrase "having a laugh" comes to mind.