How Should Lenders Deal With Mental Illness?

The murky world of credit is filled with caveats and small print

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If misunderstood or ignored, these details can have dire consequences for the borrower. Keeping on top of complicated credit agreements can often prove difficult for people whose mental capacities are limited either through illness or their genetic make up.

A consultation by the Office of Fair Trading (OFT) is currently determining the extent to which creditors need to take responsibility for these customers.

The watchdog will provide guidelines to help lenders determine when a person's mental capacity prevents them from making informed borrowing decisions when they do a credit card comparison, for example.

Following identification of those who may have limited mental capacity, the OFT guidelines will help creditors install appropriate procedures and practices so that they can be dealt with effectively whether they're looking for use abroad credit cards or loans.

Creditors will then be able to consistently judge who is likely to have the means to uphold their part of a credit agreement and who would benefit from additional support. The OFT also aims to ensure that people aren't unnecessarily discriminated against regarding their suitability for credit.

The Director of the OFT's Consumer Credit Group, Ray Watson, said that the OFT had identified a clear need for striking a balance between ensuring that consumers lacking sufficient mental capacity to make informed financial decision were protected and that they weren't inappropriately refused credit. He stressed the importance of creditors being able to balance the right of people to make their own borrowing decisions and their right to protection and safety when they weren't properly able to make decisions themselves.

Outside of the financial world, individuals with reduced mental capacities are provided with some statutory protection thanks to the Adults with Incapacity (Scotland) Act 2000 and the Mental Capacity Act 2005.

The OFT's latest consultation runs until March 2011 and comes on the back of its Irresponsible Lending Guidance consultation. Consumers and creditors specifically requested guidance from the OFT regarding best practice for financial dealings with people of lessened mental capacity.

Reduced mental capacity can be permanent or temporary. Although the two terms are often confused, mental capacity differs from mental illness in that it depends on someone's ability for learning, understanding and remembering.

Someone with a mental illness can still have a high mental capacity needed to make informed financial decisions even with instant decision credit cards.

Mental illnesses can nevertheless have serious consequence for the finances of those suffering from them. The relationship between mental illness and debt is the subject of a soon-to-be-published guide by moneysaving legend, Martin Lewis.

The guide to Mental Health and Debt is an in-depth study of the consequences of credit lending to those who are either permanently or temporarily unable to fully take responsibility for their own actions.

It is being published in early 2011.

by: Justin Schamotta

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