Debt can be liberating - used with care

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The case of Tony and Michelle Meadows, who took out a £5,750 loan only to see their debt balloon to £384,000 over 15 years, has focused public attention on the potential risks of borrowing far more effectively than any doom-laden warning from a bank or financial adviser. The Meadows, who took their case to the high court, heard this week that the terms of their loan were "grossly exorbitant" and that their debt should be wiped out. They will be able to keep their house.

The case of Tony and Michelle Meadows, who took out a £5,750 loan only to see their debt balloon to £384,000 over 15 years, has focused public attention on the potential risks of borrowing far more effectively than any doom-laden warning from a bank or financial adviser. The Meadows, who took their case to the high court, heard this week that the terms of their loan were "grossly exorbitant" and that their debt should be wiped out. They will be able to keep their house.

Others, however, have not been so lucky. This week there was a rise in the number of court actions to repossess homes around the country. National anxiety over debt is growing, and the Trade and Industry Secretary is under pressure to tighten the laws governing consumer credit.

None of this means that debt in itself is a bad thing. It is integral to modern life. Few people can afford to buy a house without taking out a mortgage. When the Government's tuition fees bill goes through, students will take on debt to attend university. Most of us find credit cards a convenience.

What we have witnessed in recent years is the democratisation of credit. In the past, banks would grant mortgages only to the rich. Now they compete to offer the lowest rates. The same is true of credit cards. The less fortunate were forced to pawn their possessions, or visit unscrupulous loan sharks, to raise cash. Now they can apply for a credit card in most supermarkets and we have one of the most competitive credit markets in Europe. The total debt figures in Britain - some £17,000 for every man woman and child - may sound daunting, but the truth is that most people borrow wisely. Instances of foolish borrowing, or lending, are relatively few.

But our easy-credit environment does require a degree of regulation. The Meadows' court victory this week is to be welcomed since it demonstrates just how devious certain ostensibly bona fide lenders can be - and how misleading the contracts they draw up. Loan sharks may be dying out in the back streets, but some are taking up residence in the high street.

The Government should consider establishing an independent consumer ombudsman to rule when a loan agreement is extortionate. This would help to keep cases like that of the Meadows out of court. As for borrowers, they should remember that, while credit can be a liberator, they must always find out exactly what they are signing.

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