Judge wipes out loan row couple's £384,000 debt
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A couple's debt, which had risen to £384,000 from an original £5,750 loan, was wiped out yesterday by a judge who described the terms of their contract as "grossly exorbitant".
A couple's debt, which had risen to £384,000 from an original £5,750 loan, was wiped out yesterday by a judge who described the terms of their contract as "grossly exorbitant".
In a ruling that is expected to have far-reaching consequences for consumers and lenders, Tony and Michelle Meadows were handed a victory that lifts the threat of their £200,000 home being repossessed.
The couple borrowed the money 15 years ago to install central heating at their home in Southport, Merseyside, and were persuaded to borrow more to pay off their mortgage arrears. Under the "compounded" interest rate, they were charged 34.9 per cent on the arrears as well as on the repayments, all of which resulted in the debt multiplying to 67 times the original amount.
"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 ... does grossly contravene the ordinary principles of fair dealing," said Judge Nigel Howarth at the end of the hearing at Liverpool county court.
Judge Howarth said the loan company, London North Securities, was imposing a condition amounting to "Hobson's choice". He said: "If [the Meadows couple] 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." The judge said this extra money was, in reality, a charge, that the loan had been mis-stated and was, therefore, unenforceable.
"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. "The agreement is bad and cannot be cured and that is the end."
Mr Meadows, 45, and Mrs Meadows, 44, who have two children, took out the original loan to install heating and convert a bathroom into a third bedroom for their children.
Mr Meadows, a car windscreen salesman, got into financial difficulty after he swapped careers. The couple built up arrears of £2,400 and a suspended possession order was served on them, which meant that they could lose their home if they failed to keep up with the repayments.
Speaking outside court, Mr Meadows said that he felt "a ton of weight has been lifted off me". He added: "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."
The couple's barrister, Paul Brant, said the decision would be welcome news to other people in serious debt. "This is a lifeline for borrowers who feel there is no hope," he said.
The judge granted the claimants leave to appeal.