Guidance on dealing with clients with mental health problems
The FCA’s Consumer Credit Sourcebook provides information on common potential causes of limited mental capacity1FCA Handbook, CONC 2.10.6G and specific indications that should alert a lender to a client’s condition.2FCA Handbook, CONC 2.10.8G Creditors should have practices and procedures for dealing with credit applications from such customers.3FCA Handbook, CONC 2.10.11G They should document the steps they take to assist people to make informed borrowing decisions and to ensure they make informed and responsible lending decisions.4FCA Handbook, CONC 2.10.12G It recommends that creditors present clear, jargon-free information to explain credit agreements and consider presenting information in more user-friendly formats.5FCA Handbook, CONC 2.10.14G The Consumer Credit Sourcebook also requires creditors to establish and implement clear, effective and appropriate policies and procedures to ensure that particularly vulnerable clients are treated fairly and appropriately, and it acknowledges that clients with mental health problems or mental capacity limitations may fall into this category.6FCA Handbook, CONC 7.2.1R and 7.2.2G However, a creditor may not be in a position to know whether a client has some form of limited mental capacity and not be able to assess their level of understanding of any explanations – eg, if there is no face-to-face interaction or the internet is used for transactions.
To address this issue, the Royal College of Psychiatrists and the Money Advice Trust published Lending, Debt Collection and Mental Health: 12 steps for treating potentially vulnerable clients fairly.7This was originally published in April 2014 and expanded to cover vulnerability more widely to reflect the FCA’s increasing attention to this issue This provides information to creditors on how to take a proactive approach to identify and address vulnerable clients, including those with mental health issues. However, it recognises that not every client with a mental health problem is automatically vulnerable or unable to manage their money, and explains how creditors and debt collectors can take clients’ mental health into account in both lending and collection situations. In addition, the Money Advice Liaison Group has produced Good Practice Awareness Guidelines for Helping Consumers with Mental Health Conditions and Debt.8Originally published in November 2007, the current (third) edition was published in 2015 Both of these publications are available from malg.org.uk/resources/malg-mental-health-and-debt-guidelines and are endorsed by the Consumer Credit Sourcebook.9FCA Handbook, CONC 7.2.3G They include the following. •Creditors, debt collectors and advisers should have procedures in place to ensure that people with mental health problems are treated fairly and appropriately.
•If a creditor has been notified of a mental health problem, an adviser should be allowed a reasonable period to collect evidence and send it to the creditor. This could be extended, if the relevant evidence was not collected by the end of one month.
•If creditors sell debts once a mental health issue has been advised, they should monitor the debt purchaser to ensure compliance with the guidelines.
•If there is a an imminent or serious threat of enforcement action being taken in these circumstances, advisers should consider if a mental health crisis breathing space application is appropriate (see here). •If a client has a serious mental health problem, creditors should only start court action or enforce debts through the courts as a last resort and only when it is appropriate and fair for lenders to do so.
•Creditors should consider writing off unsecured debts when a client’s mental health problems are long term and unlikely to improve, and if it is highly likely they will be unable to pay outstanding debts.
•Disability benefits (personal independence payment, disability living allowance and attendance allowance) should be recognised as specifically awarded for meeting mobility and care needs. It is the client’s decision whether to include any of these benefits as disposable income in the financial statement.
Note: these guidelines only apply to managing debt problems and not to the stage when the debt was incurred. However, the guidelines suggest that creditors may wish to ‘flag’ the files of clients who have explained the effect of a mental health problem on money management and debt issues. In addition, a client and someone holding a power of attorney for them could voluntarily add information about their mental health problems to their credit reference file so that creditors who carry out a search as part of a credit application are aware of the position. This can be done by a ‘notice of correction’ (see here).10A recommended form of words agreed by the credit reference agencies is at para 4.16 of the guidelines Much of the guidelines deal with obtaining evidence to demonstrate the effect of a client’s mental health on their ability to deal with their debt problems. The Money Advice Liaison Group has produced a debt and mental health evidence form (DMHEF) to assist advisers in this process. The form and guidance notes for advisers and creditors (which should be read before using it) can be downloaded from . The guidance states that, before using the DMHEF, advisers should consider:
•whether further evidence actually needs to be collected; and
•if so, whether alternative evidence is available that could do the same job as the DMHEF – eg, copies of prescriptions or patient letters.
The form has three questions to be completed by a health or social care professional who knows the client, which provide information about:
•how the client’s mental health problem affects their ability to manage their money; and
•how the client’s ability to communicate is affected by their mental health problems; and
•anything else the professional can say which would help the client – eg, condition severity or duration, any relevant treatment being received or whether the client is in a mental health crisis.
UK Finance and the Credit Services Association have advised their members to accept any suitable evidence and only ask for the DMHEF as a last resort. Where the DMHEF is used, the client must explicitly consent to a health and/or social care professional completing the form. GPs in England have agreed not to charge for completing the form.
There are, however, some issues.11See C Trend, C Fitch and A Sharp, ‘Debt and Mental Health: tools of the trade’, Adviser 160 •The form does not specifically address the question of whether or not the client was able to understand the contract they originally entered into. This is relevant to the enforceability of the contract and, therefore, the client’s liability for the debt. This is a matter that advisers should consider first of all (see here). •The client must give their written consent to the form being used. However, a third party authorised to act on behalf of the client can complete and sign the consent form.