Money Grouse: Loan plants seed of growing debt

THE BUSINESS development loan that Pennie Martin took out from National Westminster Bank to enable her to buy a van for her gardening business has led instead to a developing debt, thanks to the small print on the credit protection insurance policy that NatWest encouraged her to take out with the loan.

When ill-health, which culminated in a hysterectomy operation last year, forced Ms Martin to give up her gardening business her insurance policy - which she had arranged through NatWest's Insurance Services arm - initially met the regular payments on the loan.

It was only after her operation, when she was trying to recuperate, that it became clear that payments were no longer being made.

'It was a very awkward time for me,' she said.

The problem, it transpired, was that a medical report sent to the insurers had mentioned that, back in 1988 and long before Ms Martin had arranged her bank loan or taken out the credit protection policy, she had been given hormone therapy.

This treatment, the insurers said, was related to her present medical condition - so that her ill-health could not be considered a new development. Existing medical complaints were excluded from the terms of the insurance policy.

Ms Martin says that, if she had been aware of these conditions in the policy, she would not have taken out the insurance - and would probably not have taken out the loan, either.

She now feels that it was a positive disadvantage that the insurance was available on a 'no medical required' basis.

'If only NatWest had said, 'Have a medical' it would have saved a lot of heartache,' she said.

In reply, NatWest argues that imposing medicals would increase the cost of premiums and make credit protection insurance more complicated.

'The general concept is to provide immediate cover at bank branch level without the need for complex negotiations,' a spokesman said.

'When Mrs Martin applied for the insurance she would have received a pack giving full details of the insurance,' he added.

The original loan itself was only for a modest pounds 2,300, but because it is now considered to be in default interest has been accumulating quickly.

'They started to add on interest at pounds 2.50 a day,' Ms Martin said.

She has been seeking help from her local Citizens Advice Bureau, and is waiting to hear whether National Westminster will agree to freeze the interest while she gradually repays the debt, which is something she accepts she will have to do.

As she is a single parent now reliant on Income Support, this may take some time.

Paradoxically, part of the debt that Ms Martin must repay is the cost of the credit protection insurance policy, the very thing that has caused her so many difficulties.