Landmark ruling as judge erases couple's debt

A judge today wiped out a couple's debt of ?384,000 which had spiralled out of control from an original loan of ?5,750 due to "extortionate" interest rates.

Tony and Michelle Meadows, from Southport, Merseyside, faced losing their 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%.

The ruling by Judge Nigel Howarth at Liverpool county court is expected to have far-reaching implications for consumers and lenders alike.

He said: "The claim must be dismissed," and added that the couple were not indebted to the claimant.

The couple, who have two children, took out the loan in 1989. Mr Meadows, 45, a car windscreen salesman, claimed he had taken out the loan, designed for people with poor credit ratings, to install central heating and convert a bathroom into a third bedroom. The small print of the loan agreement 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% 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% 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." He added: "This is one of the few credit bargains which is extortionate."

When the couple failed to keep up with repayments, their debt soared and London North Securities attempted to take possession of the couple's ?200,000 family home to pay off the loan.

Speaking outside court, Mr Meadows said the couple were "absolutely delighted," and that he felt as though "a ton of weight has been lifted off me".

"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."

The couple's barrister, Paul Brant, said the decision would be welcome news to other people in serious debt.

He said: "This is a lifeline for borrowers who feel there is no hope. The consumer protection legislation in this country is working much more effectively after this decision."
The judge granted the claimants leave to appeal the decision.

The couple deny the loan was to pay off mortgage arrears of ?2,400, which the family built up after Mr Meadows left his career working for a jewellers to become a salesman for a golf company.

Paul Brant, representing the Meadows, said the couple had only wanted a loan of ?2,000 to pay for home improvements but the lenders insisted they borrow more money to pay off their mortgage arrears.

The court heard the couple ended up with a loan for ?5,750 to pay for ?2,000 home improvements, around ?3,000 to pay off their mortgage and ?750 for an insurance policy they did not want.

Before the today's judgment, Mr and Mrs Meadows described their situation as "agonising" and said they were at "risk of losing everything".