Lenders need to ensure borrowers have mental capacity

Money matters can be tough for those struggling through illness

Creditors should consider how they deal with borrowers whose mental capacity has been affected by illness or disability, a watchdog has said.

The Office of Fair Trading (OFT) is consulting on how lenders should identify those who may struggle to make informed borrowing decisions.

Mental capacity depends on people's ability to learn, remember and understand, and is different to mental illness.

The consultation runs until March 2011.

The OFT said creditors needed to form a view on whether somebody was able, with support, to make informed borrowing decisions. This should ensure vulnerable consumers did not take on unsustainable or unsuitable credit commitments.

"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," said Ray Watson, of the OFT.

"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."