There are a number of people who are being taken advantage of by loan issuers, as they do not have the mental capacity to make informed financial decisions for themselves, reported the Office of Fair Trading today.
Around 6 million people in the UK are regular users of payday loans, home credit services, pawn shops and other non-mainstream financial services. Some of these users can pay as much as 4000% interest on the loans.
As poorer people often have limited options in choosing financial products, they also tend to have a lack of understanding of the credit market, coupled with an inability to make informed financial choices.
The OFT proposed that creditors should assess whether someone was capable of, or had sufficient support, to make informed financial decisions for themselves. This will ensure mentally impaired people would not be taken advantage of by loan sharks or other loan providers in the market.
“There is a clear need to strike a balance between protecting consumers who lack the mental capacity to make informed borrowing decisions, and ensuring that they are not inappropriately denied access to credit,” said Ray Watson, of the OFT.
“It is very important that creditors balance borrowers’ rights to make borrowing decisions with their right to safety and protection when they can’t make decisions to protect themselves.”