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Summary
Following the consultation on irresponsible lending the OFT identified a need to provide further clarity on the issue of mental capacity as it impacts on borrowing decisions. Until this project, little attention had been focused on dealing with such issues at the point of the lending decision; instead the emphasis has tended to be on dealing with contractual issues and mental health. This project is not about mental health nor is it about financial capability, although the output may impinge on both.
The draft guidance seeks to clarify:
a) what the OFT would expect from creditors, in terms of identifying borrowers who might lack the mental capacity to make informed borrowing decisions, under circumstances in which it isn't known that a borrower lacks capacity but there is reasonable cause to believe or reasonable grounds to suspect that he may do, and
b) what the OFT would expect from creditors, in terms of the practices and procedures they employ in dealing appropriately with borrowers, in particular in respect of the provision of explanations of the key features (in particular associated 'risks') of credit agreements and the undertaking of assessments of affordability, where it is known that - or there may be reasonable grounds for doubting whether - mental capacity is lacking at a particular time, even where it is not reasonably possible to establish that it is lacking.
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