Dealing with bank staff, paying your bills on time and dodging the hard sell can be difficult at the best of times. But if you are one of the 16 per cent of Britons with some form of mental illness, it can be almost impossible.

Problem debt, defined as missing two or more payments, is a big issue in the current economic climate, with Citizens Advice reporting a 49 per cent increase in the number of inquiries about mortgage and loan arrears this year.

But if you are suffering from a mental illness, you are three times more likely to be in debt, and four times more likely if diagnosed with schizophrenia or bipolar disorder.

However, lenders often do not understand how mental health can influence the way that customers deal with their finances, and few have effective plans to deal with the specific demands such customers have.

Emma Mamo, of Mind, the mental health charity, says: “People with bipolar disorder may go on massive spending sprees during a manic phase and take on credit and loans that they cannot afford. Once their mania is over, they may be unable to deal with the consequences, such as being harassed to pay debts that they may not even remember accumulating.

“If you have severe depression or anxiety, you will withdraw from society. However, banks have a poor view of people who do not engage with their finances.”

When Sharon Phillips, of Aberdare, South Wales, was at her most distressed with postnatal depression, she had to be fed by her 12-year-old daughter. Meanwhile, she says, her bank was calling her up to eight times a day — from 7.30am until 10pm, “even on Sundays” — threatening to send bailiffs to collect debts from a graduate loan that she could not repay because she was unable to work. “That I was unwell was of no concern as long as I had outstanding debts,” she says.

Mental health charities say that her experience is not unusual. They believe that banks do little to support customers with mental illness and that some exacerbate mental health conditions by treating debtors insensitively and by trying to sell unsuitable products.

Ms Mamo adds: “Lenders often assume that people with mental health complaints who do not respond to requests to repay debt are pulling a fast one. They then escalate things, getting heavy-handed and threatening to take the customer to court. Sometimes people with mental health problems can’t face opening their post, let alone deal with aggressive debt collection over the phone.”

A report by Foresight, the government think-tank, backs Mind’s findings about the link between mental ill-health and debt.

The research suggests that debt collection is often “deliberately designed to produce fear, anxiety and mental stress” and concludes that creditors need to make stricter assessments to determine whether borrowers are in a position to meet their financial obligations.

Michelle Page, of Solent Mind’s money advice service, which offers support in the Southampton area, believes that banks are generally “unscrupulous”. She says: “People with severe mental health problems are invariably on benefits or very low incomes because they are unable to work, yet banks are still offering them huge amounts of credit.

“A classic example is someone who can no longer afford to make loan repayments because he or she has had to stop work and then uses an overdraft to its limit. At this point the bank offers a consolidation loan to pay off the overdraft — at twice the rate of interest, tying the customer in to debt for much, much longer.

“I have written to banks half a dozen times on behalf of someone with a mental health condition, outlining that I am from a mental health charity, and the letters have been ignored. This can cause great distress and make people even more ill.”

Sue Theobold, of Watford, Hertfordshire, has experience of banks misselling products. Her son, who suffers from paranoid schizophrenia, was given a loan over the phone, despite his current account being overdrawn — evidence that he was not managing his money — and a poor credit rating. Although the adviser was told that Ms Theobold’s son was living in supported accommodation and was in receipt of disability allowance, he was still sold accident and sickness protection insurance.

Ms Theobold says: “When he became ill through the stress of his finances, he had to leave work and, of course, could not claim anything on the insurance. He should not have been sold it because his mental illness constituted a pre-existing condition. I made a complaint but got nowhere.”

However, bank employees may find themselves in a difficult position when it comes to selling products, because they must not be seen to discriminate against people with a disability. They cannot reject a request for credit because a customer is mentally ill.

Paul Ross, of the British Bankers’ Association, says that it is a difficult call. “It is important to recognise that people who work in banks are not medical experts and can only know as much as a customer tells them,” he says. “Even when banks have this information they are not always able to ascertain what it means for the customer’s finances.”

Many people are reluctant to tell a bank that they have a mental health problem. Of those who responded to Mind’s research, 63 per cent did not inform their creditors of their mental health problem for fear of being disbelieved, misunderstood or because they were afraid that banks would treat them with suspicion.

In 2007 best-practice guidelines were established by the Money Advisory Liaison Group — made up of mental health advisers, financial institutions and health professionals — to ensure that banks and other lenders treat such customers in an appropriate way. It recommended that staff are trained to understand the difficulties faced by customers with mental health problems when dealing with their finances. Mind believes that few have bothered to implement these guidelines, largely because of budget concerns.

In Ms Page’s experience, banks nod to the guidelines while most staff dealing with debt are interested only in collecting money.

She says: “Some banks do have specialist teams that are able to offer a more empathetic ear to someone who has a mental health problem, but it is often impossible to speak to them directly. It can take months and months of dealing with various departments and collection agencies before a query is finally passed on to the specialist team.”

If you have a mental health issue, some banks will allow you to put a note on your account to alert a member of staff.

Royal Bank of Scotland, for example, will put a flag on a current account at your request if you are struggling with an illness that makes you particularly prone to asking for large amounts of unmanageable credit. You will then be prevented from going into your overdraft or monitored for unusual spending patterns.

The three leading credit reference agencies also allow you to add information about your mental health to your file, which will leave no footprint if you decide to remove it. This is the procedure that Ms Page recommends to clients who have bipolar disorder.

All three agencies have agreed a standard set of words for those who have mental health issues. However, this information will be accessed only if a bank performs a credit check.

If you have a severe mental illness, or one that could deteriorate, it may be most appropriate to give power of attorney to a friend or relative (see box, facing page), but be aware that this could cost you as much as £1,000.

For more help and advice on mental health and money, or to find a local Mind group, visit mind.org.uk or ring the MindinfoLine on 0845 7660163.

How to set up a Lasting Power of Attorney

• If you are no longer able to manage alone, it may be most appropriate to hand over the responsibility for your financial affairs to a trusted friend or relative in the form of a legal document called a Lasting Power of Attorney (LPA).

• If you have a mental health problem that is likely to deteriorate, such as dementia, it is possible to set up an LPA that will come into effect when you are no longer mentally capable.

• An LPA can be drawn up at any time while you have capacity, but it has no legal standing until it is registered with the Office of the Public Guardian. Setting up an LPA is a lengthy and expensive process and should be a last resort. It is unsuitable if your mental health fluctuates, as it removes all financial independence.

• A property and affairs LPA gives your nominated attorney power to decide how you spend your money and the way that your property and affairs are managed. You can set it up through a solicitor or with an online form on the Office of the Public Guardian website.

• Try to appoint more than one person as your attorney to help to prevent the abuse of responsibility.

• You can apply to the Public Guardian to register the LPA at any point after it has been set up.

The LPA can also be registered by your attorney after you have lost capacity.

• Lasting Power of Attorney replaced Enduring Power of Attorney (EPA) on October 1, 2007. A person given power under an EPA before this date can still use it and apply to have it registered.

• You can cancel your LPA if you have the mental capacity to do so. If there is a dispute about whether your LPA has been cancelled, the Court of Protection has the authority to make a decision.

• For more information visit www.publicguardian.gov.uk or telephone 0845 3302900.