Mental Capacity and Debt, new OFT consultation

Some people get put on the spot by creditors

Some people get put on the spot by creditors

For years my standard line has been "it’s not just about responsible lending, we need to learn to be responsible borrowers too" Yet how do you regulate for those who can’t be responsible for themselves?

I’ve written many times before about mental health and debts, and indeed our new mental health and debt guide is coming very soon. Yet this morning I was delighted to see that the Office of Fair Trading is launching a consultation on mental capacity and borrowing.

There is a big difference between mental health and capacity. Mental capacity is where people (sometimes temporarily) lack the ability to understand what they are doing as opposed to mental health, when judgement or decision making are impaired.

I’ve heard of horrible cases when people with learning difficulties who struggle to read, sign their own name, and have no concept of what debt is, have been asked to put on the spot to get credit from someone coming to their door. We need very clear regulations and guidance that this type of behavior isn’t acceptable, those loans aren’t valid and needn’t be repaid.

Here’s the OFT release in full…


The OFT has today launched a consultation on its draft guidance for creditors on mental capacity.
The draft guidance is designed to explain the steps the OFT expects creditors to take to identify borrowers who might lack the mental capacity to make informed borrowing decisions, where it isn’t known that they lack capacity but there is reason to believe, or at least reasonable grounds to suspect, that this might be the case.

It also outlines the OFT’s view of the appropriate way for creditors to deal with borrowers who do or might lack capacity, and explains the practices and procedures it considers they should put in place.
Mental capacity is a person’s ability to make decisions and depends in part on their ability to learn, remember and understand.

For many people, for reasons of illness or disability, their mental capacity can be affected in ways which may prevent them from making certain decisions that may impact on their lives.
Lack of capacity can be permanent or temporary. Mental Capacity is not the same as mental health, as someone with mental health problems may still have the capacity to be able to make informed decisions.

In the case of consumer credit, creditors need to form a view on whether the borrower is able, perhaps with support, to make an informed borrowing decision and whether they can afford to make repayments under the credit agreement in a sustainable manner.

As well as providing clarity for creditors on what the OFT expects of them in these circumstances, the guidance is also intended to help protect vulnerable consumers from taking on unsustainable or unsuitable credit commitments, while at the same time ensuring that they are not inappropriately denied credit. The draft guidance takes account of legislation in this area to the extent that it is relevant.

Ray Watson, Director of the OFT’s Consumer Credit Group, said:

‘There is a clear need to strike a balance between protecting consumers who lack the mental capacity to make informed borrowing decisions and ensuring that they are not inappropriately denied access to credit. It is very important that creditors balance borrowers’ rights to make borrowing decisions with their right to safety and protection when they can’t make decisions to protect themselves. We look forward to receiving comments from those with knowledge of and an interest in these issues."

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