The Office of Fair Trading (OFT) has published guidance for firms considering granting credit to people who might not have the mental capacity to make informed borrowing decisions.
The guidance sets out what consumer credit businesses need to do 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 new rules focus primarily on creditors adopting appropriate practices which include:
Providing borrowers with clear information and explanations about credit agreements and any associated risks.
Giving people with mental capacity limitations 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.
The watchdog’s director of the consumer credit group, David Fisher, sums up: “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.”
He adds: “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.”