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OFT launches mental capacity guidance consultation

The OFT yesterday launched a consultation on its draft guidance for creditors on mental capacity.

The draft guidance is designed to explain the steps the OFT expects creditors to take to identify borrowers who might lack the mental capacity to make informed borrowing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 The draft guidance takes account of legislation in this area to the extent that it is relevant.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.'


  1. The consultation will run from 6 December 2010 to 4 March 2011. Contact details for the team are provided on the consultation web page linked to above. 
  2. The Mental Capacity Act 2005 and the Adults with Incapacity (Scotland) Act 2000 are intended to provide a comprehensive statutory framework for supporting people who lack capacity to make decisions for themselves.
  3. The OFT's previous consultation on its Irresponsible Lending Guidance 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 are known to have or may have limited mental capacity. The OFT responded to this feedback by preparing the consultation document published today.
  4. 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.
  5. For advice on dealing with debt, see the Directgov website.

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