A couple whose £5,740 loan ballooned to £384,000 and was threatening financial ruin until it was cancelled by a judge have fought off an attempt by the loan company to enforce the debt.

The Court of Appeal in London dismissed a challenge by London North Securities to a County Court ruling which wiped out the debt run up by Tony and Michelle Meadows.

Three judges ruled that the loan agreement was unenforceable under the Consumer Credit Act because the amount of credit being advanced was wrongly stated.

But they declined to deal with other controversial aspects of the case - said to be of general concern to lending companies - including the County Court judge's description of the agreement as "extortionate".

The Merseyside couple took out a home improvement loan at an annual interest rate of 34.9 per cent in 1989 and ended up facing repossession of their home in Southport, on which the loan was secured.

The Court of Appeal heard that, if the couple had paid the instalments for the loan term of 15 years, it would have cost them a total of £26,000.

But the Meadows, already in arrears on two prior mortgages, were unable to keep up the loan repayments of £146.94 per month and the interest began to mount up.

The lenders argued that in 1989, the agreement was no different from any other non-status loan agreement.

Mr and Mrs Meadows had their debts cleared and the threat to their home lifted when Judge Howarth ruled at Southport County Court last October that the credit agreement was unenforceable because of failures to comply with the Act.

Yesterday, Lord Phillips, Master of the Rolls, and Lords Justices Waller and Lloyd rejected the lender's appeal on the narrow ground that a £750 insurance premium included in the loan was part of the charge for credit, not of the credit itself, and therefore the amount of credit should have been stated as £5,000, not £5,750. This was a breach of the Act and the agreement was unenforceable.