When illness is ignored

Even when we are on top form, it takes a lot of concentration and effort to keep our finances straight. It is so easy to fall behind with credit card or mortgage payments, get caught by an email scam, or add an extra zero when making an online transaction.

If we get carried away in the shops, leaving our overdraft limit bruised and bleeding, in most cases the worst thing that happens is that we get a rude letter from the bank and subsist on beans until the next payday.

But major financial difficulties can arise when, instead of a simple lapse of memory or self-control, we become seriously mentally ill. People experiencing the manic phase of manic depression, for example, commonly spend large amounts of money on goods and services which they do not need and cannot afford.

According to a health worker in Cambridgeshire, one of their patients bought a sail boat while in a manic episode. He nearly drowned the first time he tried to use it. Citizens Advice reports that one of its clients also bought a boat, and a horse to go with it, during a manic episode.

Unless there are alternative arrangements in place, it is frighteningly quick and easy to accumulate massive debts and ruin your credit rating or even face eviction or repossession.

Consultant psychiatrist Malti Sareen says: "Patients in the manic phase of bipolar disease are over-confident and can be very articulate. One of my patients went to see the bank during a manic phase and borrowed many thousands of pounds to start a business. He lost the money almost immediately.

"Although I tried to intervene with the bank, I was not successful. This patient will be in debt for the rest of his life. There is no protection for such people under the law."

Neither retailers nor banks are obliged to take into account one's mental state at the time when financial transactions are made. The Banking Code only promises that: "We will consider cases of financial difficulty sympathetically and positively."

However, if someone enters into a detrimental financial arrangement while mentally ill, it can be difficult to extract them from the situation.

If you book a holiday, and then have to cancel because of appendicitis, for example, you may be covered by insurance. If you make a bad financial decision or become unable to meet your financial commitments because of mental illness, there is no such coverage.

Citizens Advice reports that 85% of its clients' claims against payment protection insurance policies fail in cases of mental illness because it is a common exclusion.

Mind, the mental health charity, stresses that: "Spending sprees are a well-known aspect of bipolar disorder during the manic phase; however, people who are on medication may not have any more problems dealing with money than anyone else."

According to the Citizens Advice report, Out of the Picture: CAB Evidence on Mental Health and Social Exclusion: "The scale of the problem is huge. The Office of National Statistics estimates one in six people suffer from a mental health problem at any one time, roughly seven million people between the ages of 16 and 74."

It adds that people in this situation are especially vulnerable to high-pressure selling and mis-selling.

Retailers do not have specific policies for dealing with this situation. There is no consumer protection which explicitly covers the return of goods purchased while mentally ill, so the outcome depends entirely on the retailer's attitude and goodwill.

Another Cambridgeshire patient bought several new appliances during a manic episode, and the retailer accepted their return when the situation was explained, even though the goods had been used. And the man who bought the boat and the horse was able to return both.

Greater protection for consumers already exists in Scotland, where a contract is void if a person was incapable of understanding and transacting the business in question.

However, change is on the way in England and Wales. In 2007 the Mental Capacity Act comes into force, and will put more of an onus on banks to "engage" with customers demonstrating erratic and irrational behaviour.

Samantha Mitchell at the British Bankers' Association says: "If the person already has a bank account, then it's up to the bank to help manage the situation. If there is evidence of unusual behaviour, the account can be put 'on notice' and banks have a responsibility to engage. The new Act will put this on a firmer legal footing from 2007."

However, it could create extremely delicate situations. "The person who can put the account on alert could be a family member, or it could be someone in the bank who becomes aware of irrational behaviour. It will be putting frontline staff in a difficult situation."

Banks can't put a halt on accounts simply on the basis of a family member calling in. The most reliable method will be to obtain doctor's certificates and an enduring power of attorney (to be renamed lasting power of attorney from 2007).

Below, we highlight the enduring power of attorney system, which may enable the family to reverse some damaging financial decisions - although this may not be recognised until the person has been sectioned under the Mental Health Act for at least 28 days.

There may also be a question of benefit payments. Carers can apply to the DWP appointee scheme and obtain authority to act as a third party in handling payments. For more information go to dwp.gov.uk/advisers/direct.asp