Debt test case back in court

A LOAN cancelled after a judge described it as extortionate was no different from other similar credit agreements, the Court of Appeal was told today.

In a case with wide implications for the lending industry, London North Securities is challenging a ruling that wiped out Tony and Michelle Meadows's £384,000 debts.

The Merseyside couple had taken out a £5,740 home improvement loan at an annual interest rate of 34.9% in 1989 and ended up facing repossession.

Adrian Palmer QC, representing the loan company, told three appeal judges today that at first sight 'the figures are not attractive'. 'But in 1989 it was no different to any other non-status loan agreement.'

If the couple had paid the instalments for the loan term of 15 years, it would have cost them a total of £26,000, he said. 'What unfortunately went wrong was the fact that the payments went unpaid over periods of months and years at a time such that interest accumulated.

'There was compound interest on the debts and the figures mushroomed in that fashion. At the end of the day there was a very large indebtedness indeed.'

He pointed out that £80,000 of the outstanding amounts related to legal fees accumulated over 12 years of proceedings.

He added: 'The loan was typical of its type.It is submitted that the loan in the present case was not extortionate when it was made in the sense that it required grossly excessive payments and grossly contravened ordinary principles of fair dealing.'

Mr Palmer said the real complaint arose from the application of interest to arrears and charges when the couple fell behind with their payments.

Mr and Mrs Meadows had their debts cleared and the threat to their home in Gosforth Road, Southport, lifted when Judge Howarth ruled at Liverpool County Court last October that the credit agreement was unenforceable. He said it was an extortionate credit bargain which contravened the Consumer Credit Act.