Judge erases couple’s debt
Published by MadMan October 29th, 2004 in LawVia Fark.com comes this story:
A judge today wiped out a couple’s debt of £384,000 which had spiralled out of control from an original loan of £5,750 due to “extortionate” interest rates.
Tony and Michelle Meadows, from Southport, Merseyside, faced losing their home after they were taken to court by London North Securities for failing to keep up with repayments on their loan, which had an APR of 34.9%.
I’m tempted to chime in with my views, but I’ll leave the comment section for you to have your say instead.
While my good will to them, i don’t see how any couple can have all their debt wiped out due to unreasonable interest rates?? For one thing what would we have next? people searching for lenders who offer loan at huge rates & later get all the wiped out by a judge?
The couple did know what they were getting into, my sympathies lie with the lenders than with the couple. The lender for one thing should have been treated better for the following reasons,
1. They took the risk of lending to someone who probably couldn’t receive it from anywhere else, why else would they agree to such exhorbitant rates!
2. They are in the business of lending and making money out of it. Why should they be penalised when they were many other options available for the couple?
It seems the couple had the cake and ate it too now!! Thats highway robbery only inverse!!
If only there had been more competition between the lending community, then perhaps such high interest rates could have been avoided in the first place!
And why did the judge rule anything at all in this case? Why can’t people just stop looking towards the law for refuge everytime they make a bad decision?
A similar issue comes up with price gouging in times of disaster/scarcity.
The market-rationale could be summarized as: exorbitant price is justified given the demand.
What such textbook applications of supply-demand by even people like DOn Boudreaux at CafeHayek who has ranted in many a post on the benefits of price gouging forget: is that sometimes demand gets completely elastic.
That is, people are prepared to pay ridiculous amounts, tending for practical purposes to infinity, just to tide over the present moment.
A mother with a starving child, in the aftermath of an earthquake disaster, for eg. would be prepared to sell all her jewelery if that gets her food for her child.
Such 100% elastic demand is unnatural. The assumptions behind operations of a market FAIL. Thus, it is essential that there be curbs to exploiting this chink in the supply-demand curve and pass it off as “market forces”.
Quoting from the original article:
Yeah yeah, you are supposed to read the entire contract agreement. Frankly, are the agreements even readable? 10 pages of f**ks**t, with one line somewhere in there that would kill you.
Absolutely. This is a specific ruling. Had the couple known about the interest rate, they would not have gotten into the agreement at all. Secondly, these people didn’t go on a spending spree… it was a one-time expense.
What next will we hear from the libertarians… that the exploitation of the poor in India by Zamindaars charging 200% interest rates was fair because of “market forces?” I am no leftist, hell not even a centrist… but is it so wrong to have a “people sensitive market force?”
Niket, the question to ask is “did the loan company commit a fraud?”
If not, then the old adage of “caveat emptor” holds — let the buyer beware.
Judicial rulings have the power of precedence. What will be sad is a future where loans are simply not given because there is a fright that somewhere down the line a judge might forgive a defaulter.
Anyway, the situation is much worse in India where I have yet to hear of a foreclosure in the case of a default.
What will be sad is a future where loans are simply not given because there is a fright that somewhere down the line a judge might forgive a defaulter.
It could also mean a future where important considerations like charging compounded interest rates will need to ne mandatorily communicated upfront to people who take loans… rather than hide it in reams of ‘tiny print’!
As an aside, it wouldn’t make sense for police (in the US) to handover a sheet of paper with Miranda rights written on it in small print, would it?! ;-)
What is Niket talking about? Credit card companies charge 36% interest on their outstanding balances. Is he suggesting that we shut them down too?
The slope you recommend is very slippery, my friend. I’ll leave you to figure out why.
Of course it is not fraud but how many of us read all of the small print in a contract? One can argue that it is the consumers responsibility but have any of you read any of the small print that accompanies any of the services we purchase - any many times the small print is nothing short of extortion.
Quote from the small print on my contract with Cingular Wireless - now the largest wireless provider in the US after buying out AT&T (about size 5 in font size)
WHAT?? I sign a 2 year contract with Cingular for wireless services (which I cannot break without heavy fines) and Cingular has the right to suddenly start charging me $10 a call instead of the 40c per call that was in the original contract. You can argue that I can leave Cingular - but hold a sec - I can’t - I also signed that if I cancelled the account before 2 years - I would pay a $150 fine. Do I have a choice - No - because all the cell phoe companies have pretty muh the same small print and contract obligations.
Is it legal ? Absolutely - is it right? You tell me? Luckily if Cingular ever tries to do this (and they try frequently believe me) the FCC will be on them like a ton of bricks and will in all liklihood allow me (and other customers) to break their contract without penalty.
The Free Market is great - but there needs to be soem recourse for customers who have no other choice.
CK, here’s an idea - read the small print.
I think we should have a law stating that no term of any contract is enforeceable unless we have a video recording of all parties to the contract reciting that particular term of the contract in the first language of the party in the presence of two witnesses. If any witness later disclaims the authenticity of the videotape, the contract is null and void. That should put an end to arguments about how small a print can be.
Sumesh, you misquote me (much like media misquotes laloo yadav :-))
“Credit card companies charge 36% interest on their outstanding balances. Is he suggesting that we shut them down too?”
Absolutely not. I am reading this verdict as KEY items of a contract (such as 36% interest rate) should be declared upfront, not relegated to fine print. I am not saying 36% is wrong. (It may be if someone exploits a situation such as drought or earthquake, I don’t know)
Ravikiran Rao:
I thought libertarians were thoughtful people, not the ones to use an emotive rhetoric. Thats the prerogative of the loony left :-) No seriously, can you refer the exact point in the comments or the original article that instigated you to make this statement?
I haven’t read the contract, so I don’t know how fine the fine print was. For example, my apartment lease reads:
$### per month… due first of each month… penalty $100 for late… $50 per day.
Would it be fair if the penalty was mentioned in the fine print. I believe Georgia law requires the apartment guys to declare this up front, instead of fine print. Else, I am sure there will be a lot of apartment complexes that will keep this in fine print, hope someone makes a mistak and BOOM! I think this helps me WITHOUT hurting the leasing agency.
I don’t think the libertarians suggest “power to leasing agencies” even if people get screwed, do they? I thought libertarianism would be about power to people and leasing agencies alike.
Libertarians should be very careful about falling into the trap that those on the left succumb to in expecting judges to substitute the law for their personal will.
The loan was struck down because it was contrary to law and the learned judge ruled according to the statutes laid down by Parliament. It is a decision at first instance, was in the county court, lower than the High Court and Court of Appeal, and will not set any new precedent.
HHJ Howarth stated that “If they wanted the loan at all they had to have their mortgage arrears paid off which increased the amount they wanted by more than £2,000… this extra money was, in reality, a charge and therefore the loan had been mis-stated and was unenforceable.”
As the extra money was a charge, therefore the loan was unenforceable under the law of England and Wales.
No new principles of law or precedents were created. The case was confined to its facts.
All libertarians should be aware to know as full a version of the facts of a story before pronouncing upon it, and to recognise that the citizenry of any country are only secure when judges rule according to law and not to political or philosophical whim.
Niket, after making an “argument” about libertarians being unconcerned about the suffering of peasants, it does not behoove you to accuse me of making emotive arguments.
If you want to make a rational argument, propose what law you would pass, make an honest appraisal of the consequences - both positive and negative - and then make the case that the positives outweigh the negatives. Otherwise, if you insist on making slippery slope arguments, well two can play the game.
Note that the burden of proof ought to always be on those who propose a law, because it is unfair to expect us to prove a negative.
I think the reason why people like Ravikiran and Yazad are so pro-everything that the private sector throws out is that they have never lived in a country like the US where the private sector does actually rule. Having lived in a State-run system like India - they are convinced that the grass is greener on the other side and that because the private sector runs so many things here - that it must be really great. In fact it is just the opposite. The reason why a ‘liberal’ is pro-pvt. in India while in the US a liberal is someone who is pro-govt. is that each thinks life is better under the other system. Whe in fact it is just the same - it all comes down to human nature and if somebody wants to cheat you, he can do so as easily from a bureacrats desk as he can from a CEO’s office - somehting which Ravikiran cannot understand as he probably has never seen first hand the darker side of the private sector as many of us who live in the US have.
Ck, your comment reminds me of something Parth at CCS used to say quite often:
BTW, Ravi is currently in a plane flying to the US.
I lived abroad for three years. Does that count?
Ravi, you said
You are perhaps referring to my quote:
That was a tongue-in-cheek comment. I have a straightforward outlook: power to both peasants and zamindaars alike. If peasants are tricked into something they weren’t fully aware of, I am with the peasnants. If peasants are trying to take advantage of the “ignorence” bullsh*t, I am with zamindaars. As I mentioned earlier, 34% interest is not a problem. The problem is that this was not mentioned upfront, but in fine print. With “people sensitive” I don’t mean socialism. I am all for free markets… but in free markets, there are poor souls that fall into a bottomless pit… and I expect the government to help them. And that is perhaps where we differ.
The reason why it is called Market FORCE is because it is exactly that a force of nature - sometimes it does good sometimes it does bad. Rivers are a force of nature which provide great benefits but when they flood they can cause great harm - which is why we build dams and canals so we can control it to some extent. The same extends to a market force - lots of benefits but when it gets out of control - you have to have some mechanism to protect those who can’t get out of the way fast enough.
This is the main gripe I have with libertarians - if they see the word market in any sentence, in any context -they immediately support it irrespective of anything else.
BTW Yazad - am still waiting on the promised post on when corporations have been ‘bad’.
Ck,
With freedom comes responsibility. And I think libertarians understand it better than most. So of course if businesses commit fraud, they should be prosecuted (and the relevant executives fined / jailed).
The “protection mechanism” is called the judiciary ;-)
Our main point of disagreement is whether businesses should be treated in a different way than individuals. I don’t think so. I think the “market” is simply a collection of individuals and should have the same set of rights / priviledges / punishments for wrongdoing that individuals have.
…whether businesses should be treated in a different way than individuals. I don’t think so. I think the “market” is simply a collection of individuals and should have the same set of rights / priviledges / punishments for wrongdoing that individuals have.
Well said Yazad. :)
Are there laws in India that prevent a bank/corporation from charging an interest rate higher than X%?
Are there laws that prevent a corporation from lending to rural customers?
If there are, then that really explains how so many moneylenders and informal lending authorities still flourish.
It is because a SBI/Reliance/ITC/HLL are not allowed to compete the bl**dy interest rates out of them.
Allow usury in full flow and interest rates will equilibrate to reveal actual risk factors.
Ironically, the left demands that banks offer farmers lower interest rates, the exact opposite of what economic logic indicates. What they don’t realise is that the alternative to the 30%p.a. loan from SBI is a 200%p.a. loan from the sahukar.