Mental capacity and vulnerable customers

The FCA's rules and guidance on mental capacity surrounding the sale of consumer credit are set out in CONC 2.10 and draw on guidance which was initially published by the OFT in October 2011.

Mental capacity is about whether a person has the ability to understand, remember and consider information which is presented to them and make an informed decision.  It should not be confused with mental health: a person with a mental health condition may still have the capacity to make an informed decision.

Vulnerability is a much broader concept, defined by the FCA as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly where a firm is not acting with appropriate levels of care’. A survey undertaken by the regulator established that half of UK adults display one or more characteristics of being potentially vulnerable.

The FCA has been consulting on new vulnerability guidance which provides options for ways in which firms can comply with its principles. The guidance here covers:

  • the needs of vulnerable customers;
  • staff skills and capability to deal with vulnerable customers; and
  • taking practical action.

This module explains how motor finance businesses must consider a customer’s ability to make a borrowing decision, as well as their right to protection if they are vulnerable. It explains the practical steps which firms can take to identify and assist vulnerable customers who apply for motor finance.

CONC sets out how the FCA expects firms to deal with customers appropriately when it is known or suspected that they have, or may have, some form of mental capacity limitation which constrains their ability to make an informed borrowing decision.

Firms should take reasonable steps to make sure that suitable business practices and procedures are in place to:

  • identify customers who might lack the mental capacity to make informed borrowing decisions; and
  • treat customers appropriately where it is known that they may lack mental capacity.