The relevance of mental capacity to borrowing and lending decisions

Customers' mental capacity will vary and an individual's capacity may vary according to what is being discussed. 

Some customers may find certain concepts and information more difficult to understand than others – for example, the interest rate under a finance agreement might be more difficult to understand than information about the duration of an agreement.  If a firm suspects that a customer might not have sufficient mental capacity to make a fully informed borrowing decision, it should consider the following:

  • whether or not the customer appears able to understand, remember and weigh up the information and explanations provided in the showroom and therefore be able to make an informed decision on the finance agreement being offered;
  • whether the customer appears able to afford to make repayments under the credit agreement in a sustainable manner, without adverse consequences to their finances;
  • whether the finance product being sought is suitable for the customer's needs and individual circumstances; and
  • in particular, whether the customer appears to understand the key risks posed by the finance agreement – for example, the risk of default and possible repossession of the vehicle – and appreciate the commitment associated with entering into the agreement.

It is imperative that the firm weighs up all the information available to it to determine whether a customer may have a mental capacity issue and may need further assistance before progressing a finance application.  Such customers should not automatically be denied access to finance agreements – but further steps may need to be taken.