Lenders to assess mental capacity of borrowers

The trading watchdog has said that lenders must take steps to ensure people borrowing money are mentally capable of making such a decision.

The Office of Fair Trading (OFT) is running a consultation on the steps lenders must take to ensure a customer fully comprehends what they are doing and to assess whether they are financially capable of meeting the repayments.

The guidance aims to protect vulnerable consumers whilst ensuring they are not denied credit.

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

The OFT said it had come across cases where lenders had advanced money to people who listed their address as a mental health institution or lent to people with multiple credit cards.

It has outlined steps it expects lenders to take when assessing the mental capacity of an applicant. It also looks at the way creditors should deal with these borrowers.

The OFT has also stressed that mental capacity is not the same as having a mental health problem, as someone in this situation may still be able to make informed decisions.

The consultation will run until March next year.

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