Debt and mental health
Since the Office of Fair Trading (OFT) published mental capacity guidance in September 2011, we have seen an increase in publicity surrounding the issue of debt collection from customers with mental health problems.
This is a sensitive area, as such, the guidance has been produced to provide clarity for creditors on the issue of mental capacity in the context of responsible lending and borrowing decisions, as to what the OFT expects of them.
One of the aims in producing this guidance is to afford better protection to vulnerable consumers.
The guidance focuses primarily on creditors adopting appropriate practices and procedures to assist borrowers who might not have the mental capacity to make informed decisions. Furthermore, it requires creditors to encourage customers to disclose any mental health condition and anything else that is relevant to the making of a lending decision.
Pre-contract explanations should be adapted to suit the customer's individual needs and requirements. The creditor must be satisfied that the customer is in a position of understanding to make an informed decision.
If a customer is diagnosed with a mental health problem after entering into the agreement, the creditor needs to be able to provide the customer with support and treat their customers fairly and with an understanding of how their mental health problems impact on the customer's ability to manage their finances.
In the OFT's view, there are a number of overarching principles of consumer protection and fair business practice which apply to all debt recovery activities. In general terms, creditors should:
- treat debtors fairly
- be transparent
- exercise forbearance and consideration
- in particular towards debtors experiencing difficulty
- establish and implement clear, effective and appropriate policies and procedures.
If a creditor has an asset outstanding for example, under a hire purchase agreement, creditors should proceed with caution. If no payment plan is forthcoming, creditors may want to recover the asset. It is important to assess the risk early on to minimise any potential loss for the creditor as far as possible, whilst at the same time ensuring customers are treated fairly.
Where a customer has informed a creditor that they are suffering from mental health problems, it may be appropriate to place the matter on hold for a period of 28 days to allow the customer to provide evidence of their mental health and provide proposals for payment.
The OFT expects creditors engaging in debt recovery activities to have regard to The Money Advice Liaison Group's (MALG) voluntary guidelines for best practice in the management of debt.