What does ‘capacity’ mean?

You ‘have capacity’ to take out a loan if you can:

• Understand and remember information about the loan,
• Weigh up that information when deciding whether you want the loan, and
• Let someone know what your decision is.

If you can't do one of these things, you ‘lack capacity’ at the time.

What if I took out a loan when I lacked capacity?

It can be hard to prove that you lacked capacity, especially if it was a long time ago. It can also be hard to show that a bank or money lender should have known.

However, the lender should have known you lacked capacity if:

•  You told them you had an illness,
• They could see that you were finding it hard to follow the conversation and understand what they said,
• They know you have an appointee for benefit purposes,
• Your attorney under a Lasting Power of Attorney told the lender you lack capacity,
• The lender knows that you are subject to a Court of Protection order,
• You told the lender that you wanted to spend the money on something unusual, or
• You talked about unusual or unrelated things when they were explaining the loan agreement.

The law that governs mental capacity is the Mental Capacity Act 2005.