The Mental Capacity Act 2005 sets out the legal framework concerning mental capacity for England and Wales. The Ministry of Justice has issued the Mental Capacity Act Code of Practice which, among other things, includes information on indications of mental capacity limitations and on how to assist people with making decisions.
The Adults with Incapacity (Scotland) Act 2000 provides the framework in Scotland for safeguarding the welfare and managing the finances of adults who lack capacity due to mental disorder or inability to communicate.
References in this section to a firm's knowledge, understanding, observation, suspicion, assumption or belief include1 that of the firm's employees, appointed representatives, agents and any others who act on behalf of the firm.
[Note: footnote 2 of MCG]1
[Note: paragraph 2.4 of MCG]
Where a firm reasonably suspects a customer has, or may have, some form of mental capacity limitation which would constrain the customer's ability to make a decision to borrow, the firm should not regard the customer as lacking capacity to make the decision unless the firm has taken reasonable steps without success to assist the customer to make a decision.
[Note: paragraph 3.2 of MCG]
Amongst the most common potential causes of mental capacity limitations are the following examples, a mental health condition, dementia, a learning disability, a developmental disorder, a neurological disability or brain injury and alcohol or drug (including prescribed drugs) induced intoxication.
[Note: paragraph 2.9 of MCG]
A firm is likely to have reasonable grounds to suspect a customer may have some form of mental capacity limitation if the firm observes a specific indication (behavioural or otherwise) that could be indicative of some form of limitation of the customer's mental capacity. Examples (amongst others) of indications might include:
a person who is likely to have an informed view of the matter, such as a relative, close friend, carer or clinician raising a concern with the firm as to the capacity of the customer to make a decision about borrowing;
the firm understands or has reason to believe the customer does not understand what the customer is applying for;
the firm understands or has reason to believe the customer is unable to understand the information and explanations provided by the firm, in particular concerning the key risks of entering into the agreement;
the customer is unable to communicate a decision to borrow by any reasonable means;
[Note: paragraphs 3.14 and 3.15 of MCG]
A firm should not unfairly discriminate against a customer who it understands, or reasonably suspects, has a mental capacity limitation, in particular, by inappropriately denying the customer access to credit. [Note: paragraph 4.8 of MCG]
It would not be inappropriate not to grant credit nor significantly increase the amount of credit under an agreement nor set a credit limit for running account credit where the firm reasonably believes the agreement or decision would be voidable at the instance of the customer or the agreement is void.
In accordance with Principle 6, firms should take reasonable steps to ensure they have suitable business practices and procedures in place for the fair treatment of customers who they understand, or reasonably suspect, have or may have a mental capacity limitation. [Note: paragraph 4.1 of MCG]
CONC 7.2.1 R requires1firms to establish and implement arrears policies and procedures, which include policies and procedures for the fair and appropriate treatment of customers the firm understands or reasonably suspects of having mental capacity limitations.1
[Note: paragraphs 4.3 and 4.5 of MCG]
As stated in the Mental Capacity Act Code of Practice, it is important to balance a person's right to make a decision with that person’s right to safety and protection when they are unable to make decisions to protect themselves.
[Note: paragraph 4.5 (box) of MCG]
Firms should present clear, jargon-free information in explaining credit agreements in a way that makes it as easy as possible for the customer to understand. Firms should consider ways to present information in alternative, more 'user-friendly' formats where it appears appropriate to do so, subject to compliance with the relevant statutory requirements.
[Note: paragraph 4.20 of MCG]
Where a firm knows, or reasonably suspects, that a customer has or may have one of the conditions in CONC 2.10.6 G this could justifiably act as a trigger for the firm to consider the potential specific steps in giving effect to the firm's practices and procedures for assessing:
whether or not the customer appears able to understand, remember, and weigh up the information and explanations provided and, when having done so, make an informed borrowing decision;
[Note: paragraphs 2.5 and 2.11 of MCG]
Firms' practices and procedures should be designed to assist customers that firms understand have, or reasonably suspect of having, mental capacity limitations to overcome, to the extent possible, the effect of the limitations and place them, to the extent possible, on an equivalent basis to customers who do not have such limitations, to increase the likelihood of customers being able to make informed borrowing decisions.
[Note: paragraph 4.4 of MCG]
sufficient time in the circumstances to weigh up the information and explanations the firm has given;
sufficient time in the circumstances to make an informed borrowing decision;
to defer a decision to borrow to a later date.
[Note: paragraphs 4.26, 4.27 and 4.28 of MCG]
Where a firm understands, or reasonably suspects, a customer has or may have a mental capacity limitation it should apply a high level of scrutiny to the customer's application for credit, in order to mitigate the risk of the customer entering into unsustainable borrowing (see CONC 5.2 and CONC 5.3).
[Note: paragraphs 4.32 and 4.33 of MCG]
Where a firm understands or reasonably suspects a customer has or may have a mental capacity limitation, it should undertake an appropriate and effective creditworthiness assessment or assessment required by CONC 5.2.2R (1) and it would be appropriate not to place over-reliance on information provided by the customer for the assessment.
[Note: paragraph 4.34 of MCG]
Where a firm understands, or reasonably suspects, a customer has or may have a mental capacity limitation the firm should take particular care that the customer is not provided with credit which the firm knows, or reasonably believes, to be unsuitable to the customer's needs, even where the credit would be affordable.
[Note: paragraph 4.43 of MCG]