Perhaps the biggest news of the week for us has been the story of London North Securities v Mr & Mrs Meadows at Liverpool County Court
In this case, the Meadows had borrowed £5750 in 1989, which was secured on their home. At some point, they fell into arrears, but the agreement was couched in such terms as to allow 'hidden' compound interest to accrue on the arrears and the interest itself. This meant that over 15 years, the debt grew out of all proportion to eventually reach the staggering sum of £384,000
- the famously quoted 67 times
the amount originally borrowed.
What has not been appreciated until now is that the true outstanding balance of the loan was kept from the Meadows all along by the creditor. Indeed, at certain points, they were misled into believing they owed much less than the actual oustanding amount, which at that time was £140,000. As is common with many Consumer Credit Act loans, there is no legal obligation on the lender to issue regular statements.
What appears key in this case is that the creditor made it a condition of the loan that some of it was used to repay arrears on the main mortgage. The loan also included payment protection insurance that the Meadows did not want. This and the arrears payment represented a 'charge' which the District Judge considered to invalidate the entire agreement. Judge Howarth's final comment is priceless:
"The agreement is bad and cannot be cured and that is the end"
With this case, a lot of attention has been paid as to what is and what is not 'extortionate' credit. Some have argued that the APR (Annual Percentage rate) of 34.9% was not extortionate - indeed, many store cards have comparable APRs. Provident Financial's 'Vanquis' credit card has a massive 64.9% APR, as reported by us in April
But the legislation makes is clear that extortionate credit is not just indicated by the APR. Other factors include: security provided by the debtor; the risk taken by the creditor; financial pressure that the debtor was under at the time; the total charge for credit etc.
In law, the legislation that surrounds extortionate credit is old (1974), complicated and obscure - very few experienced advisers we know have ever brought such a case (including us). It relates only to agreements regulated by the Consumer Credit Act 1974, so conventional mortgages are excluded, but not 'secured loans' like the Meadows case and yet, over the years, very few cases have been won by debtors. And it's by no means certain that this case will lead to lots of other victories by people with similar cases, though no doubt many will be brought.
London North Securities have got all they deserved in this case. Companies like them prey on vulnerable people who often have nowhere else to go in terms of credit and are forced to sign up to agreements that are extremely disadvantageous and invariably 'bound to fail'. As we have seen, they often contain clauses and terms of questionable legality that are often 'hidden' from scrutiny. Furthermore, in our experience, when arrears arise many of these companies seem to purposely avoid court action for long periods in order to allow the oustanding balance to mushroom via compound interest and arrears charges, swallowing up any equity in the client's properties upon reposession.
Needless to say, Money advisers will be reviewing all their cases with this creditor, or indeed any similar credit agreements. Provided there is not a successful appeal by London North Securities, the Meadows brave stand in this case will be valuable 'case law' that is useful in many individuals fight against such usurious crooks.
Campaigning organisations should also take up this case and argue for changes that are overdue
What will it take for governments to take a long hard look at existing legislation and consider how to draft better law that offers debtors protection against the extorters and *quickly*?
Giving evidence on behalf of London North Securities, Ronald Bamberg a 'money lending expert' commented revealingly:
"The lender in this case has not done anything which is unusual, it is standard practice in business and commerce"
(A follow up post with more detail about this case will appear as soon as we have more detailed information)