WIREDGOV

The OFT has published guidance for businesses when they are considering granting credit to people who might not have the mental capacity to make informed borrowing decisions.

It sets out steps that the OFT expects consumer credit businesses to take with a view to:

• identifying borrowers who might have mental capacity limitations
• assisting them to understand credit agreements so they can make informed borrowing decisions
• reducing the risk that they will be granted unaffordable or clearly  unsuitable credit.

The guidance focuses primarily on creditors adopting appropriate practices and procedures to assist borrowers who might not have the mental capacity to make informed decisions. These include:

• providing borrowers with clear information and explanations about credit agreements and any associated risks
• giving them adequate time to weigh up the information and explanations provided in order to better enable them to reach responsible borrowing decisions
• carrying out sufficiently stringent assessments of their ability to afford to meet repayments in a sustainable manner.

David Fisher, Director of the OFT's Consumer Credit Group, said:

'This is a sensitive area. In producing this guidance, we aim to provide clarity for creditors as to what the OFT expects of them and to afford better protection to a particularly vulnerable group of people, whilst  ensuring that they are not inappropriately denied credit.

'It is important to balance the right of a person to make a decision, with their right to safety and protection when they can't make decisions to protect themselves.'

NOTES

1. Download Mental capacity - OFT guidance for creditors (pdf 547kb).
2. For more information, see the Mental capacity guidance for creditors page.
3. Mental capacity is a person's ability to make a decision. Whether or not a person has the ability to understand, remember and weigh up relevant information will determine whether he is able to make a decision based on that information. Limitations in mental capacity can be permanent or temporary. 
4. Mental capacity is not the same as mental health, as someone with a mental health condition may still have the capacity to be able to make informed decisions. 
5. The OFT's consultation on its Irresponsible Lending Guidance (launched in July 2009) highlighted that consumer groups and creditors felt it would be helpful for the OFT to produce more detailed guidance on creditors' responsibilities towards borrowers who it is understood have, or it is suspected may have, some form of mental capacity limitation that might impact on their ability to be able to make informed borrowing decisions. The OFT will be updating its Irresponsible Lending Guidance in October 2011 to reflect the position in the Mental Capacity Guidance.
6. The Consumer Credit Act 1974 (the Act) requires most businesses offering credit, lending money or involved in activities relating to credit or hire to be licensed by the OFT. The OFT produces guidance to clarify its expectations of those companies and individuals that hold a consumer credit licence. Failure to have regard to OFT guidance can call into consideration the business' fitness to hold a consumer credit licence.
7. For advice on dealing with debt, see the Directgov website.