Mental capacity becomes credit issue, says trading watchdog

LENDERS must take steps to ensure people borrowing money from them have the mental capacity to make an informed decision, the trading watchdog said yesterday.

The Office of Fair Trading (OFT) is running a consultation on the steps lenders must take to ensure a customer is in a position to understand what they are doing and to assess whether they can afford the repayments on debt they take on.

It said its guidance aimed to protect vulnerable consumers from taking on unsustainable debt, at the same time as ensuring they were not denied credit.

The OFT said it had found cases where lenders advanced money to people who were in-patients in mental health institutions, despite the fact that their address made this obvious.

Ray Watson, director of the OFT's consumer credit group, said there was a need to "strike a balance" between protecting consumers and ensuring they are not denied access to credit.