Campaigners are calling for better safeguards to stop people with mental health problems getting into debt.
Mentally ill are very vulnerable, says Citizens Advice
Citizens Advice believes there should be a right to cancel a contract where there is evidence it was not understood because of a mental illness.
In one case, a psychiatric hospital in-patient took out bank loans, giving the hospital as his home address.
Although he was incapable of understanding the contract, his bank refused to write off his debts.
Citizens Advice says that the debt problems can often end in court action, and sometimes result in people losing their homes.
In another case cited by the charity, a man with manic depression and living on incapacity benefit was persuaded by a salesman who cold-called him at home to take out a £10,600 loan to buy a new kitchen.
Repayments over ten years would have added up to £24,000.
When he failed to make payments he was pursued by the bank and their solicitors, even though workmen installing the kitchen had been sufficiently concerned by his behaviour as to ask their office whether they should continue, Citizens Advice said.
A House of Lords committee will review the Mental Capacity bill this week.
The proposed legislation provides rules on caring for people who lack capacity through mental illness or disability, in England and Wales.
The bill would establish a legal presumption that everybody is able to make decisions about their own treatment unless they are proved to be mentally incapable of doing so.
Citizens Advice is urging peers to make an amendment that would protect mentally ill people who had taken on debt.
Greater protection for vulnerable consumers already exists in Scotland.
In Scottish common law a contract is void if a person was incapable of understanding and transacting the business in question.
"It is not right that consumers who don't have the mental capacity to fend off tricksters should have to pay the price," said Teresa Perchard, director of policy at Citizens Advice.
"It must be plainly clear that there is not a valid contract if one of the parties involved doesn't know what they are doing.
"In criminal law a person is not held liable for their act if it can be demonstrated that they don't understand that what they have done is wrong. The same principle should be applied in consumer law."