Debt crisis forces Government to bring forward laws to restrict loan sharks

The court victory for a couple who had their debts wiped out by a judge has put pressure on the Government to urgently bring forward legislation to help hundreds of others facing similar extortionate demands from loan sharks.

The court victory for a couple who had their debts wiped out by a judge has put pressure on the Government to urgently bring forward legislation to help hundreds of others facing similar extortionate demands from loan sharks.

Tony and Michelle Meadows, from Southport, Merseyside, had debts of £384,000 wiped out by a judge after he ruled that the punitive interest charged on a loan of £5,750 was extortionate under existing credit laws. The case is the latest to highlight Britain's spiralling debt crisis and has increased calls for ministers to tackle the growing problem.

Patricia Hewitt, the Trade and Industry Secretary, is ready to bring forward a Bill that will make it easier for those facing similar debts to escape from loan sharks. However, there is now pressure on Ms Hewitt to guarantee the proposals a place in the Queen's Speech next month, which was agreed by the Cabinet on Thursday.

The legislation has already been put forward for consultation with a White Paper on consumer credit.

The bill will widen the definition of an "extortionate" loan, used in the Meadows case, to allow consumers to seek redress for all unfair aspects of a transaction, including the credit level. It would also create an independent consumer ombudsman who could intervene in credit rows.

The Trade and Industry Secretary hinted that she had been allocated time for the issue in the next session of Parliament. She said: "The Government is making it much easier for people to challenge unfair loan agreements so they don't have the added burden of going through a lengthy and expensive court battle. By modernising the consumer credit market we are driving out the rogues and giving consumers more rights."

MPs pressing for the change in the law said that there were hundreds of other couples facing similar punishing levels of interest on loans.

They include Fred Jones, from Nottingham, who said on BBC radio yesterday that he was in danger of losing his house because of a loan from London North Securities, the same company involved in the Meadows case.

Mr Jones said: "The initial loan was in September 1991 for £8,470. I should pay £176 a month. So far I have paid £28,000 and have asked on numerous occasions to redeem the loan. They are coming up with silly figures. They want in the region of £90,000. My accountant was astounded.

"His comments were that in some parts of the loan I had to pay 56 per cent interest and I would never ever - even though there were no arrears - pay the loan off."

His MP, the former Labour whip Graham Allen, who has campaigned for action against loan sharks, said: "There are hundreds of people throughout the UK who are suffering from extortionate rates of interest and very high loan repayments.

"I hope very much that the Government will take this chance to bring forward a package of measures to make sure these loan sharks are put out of business and can no longer charge an extortionate rate of interest on people who take out relatively small loans."

He urged people having trouble repaying loans from London North Securities to contact the Department of Trade and Industry (DTI). The White Paper rejected the idea of placing a ceiling on the level of interest rates that could be charged, arguing that this could drive people desperate for loans into the hands of black market money lenders, who would operate completely outside the law.

The aim of the White Paper, which is available on the DTI website, was to give people more ways of seeking redress against unfair transactions. It said that practices could be considered unfair if they involved misleading information, harassment and coercion, aggressive debt-collection techniques or high-pressure selling.

Interest-rate charges could be considered unfair if they were substantially above market levels, with regard to the level of default interest, charges and costs.