Banks Voice Concerns Over New Benefit Debt Recovery Powers by DWP

In a significant development, the UK banking sector has expressed apprehensions regarding government proposals aimed at combating benefit fraud, which could inadvertently risk breaching consumer protection regulations. The new legislation, unveiled by the Department for Work and Pensions (DWP), would enable the DWP to recover benefit overpayments directly from claimants’ bank accounts without requiring prior court approval. While the government touts this measure as a means to expedite debt recovery and enhance fraud prevention, UK Finance, representing major banking institutions, warns that these actions could jeopardize protections afforded to vulnerable customers.

This initiative follows years of discussions on how to integrate banks more effectively into efforts to combat benefit misuses, resurrecting plans from a previous Conservative government that failed to advance in Parliament before the last general election. Although the banking sector has been lobbying against these proposals for over a year, this marks their first public stance on the issue.

Currently, the DWP can recover benefits overpayments directly through the welfare system or payroll deductions from employed claimants. The proposed legislation would allow direct deduction orders from bank accounts, with banks permitted to charge claimants an administration fee. However, safeguards are intended to be in place, requiring that the DWP thoroughly analyze three months of bank statements to assess the potential risk of hardship due to deductions.

UK Finance’s director, Daniel Cichocki, acknowledges the necessity of tackling fraud but urges a careful examination of the potential implications for at-risk customers. He emphasizes the need for preventive measures to curb fraud at its source rather than relying on reactive legislation. Additionally, concerns have been raised regarding the implications of new rules obligating banks to disclose customer information related to suspected benefit mispayments, expanding from the existing requirement which necessitates reasonable suspicion of fraud.

Statistics show that in the past year alone, benefit overpayments due to fraud reached £7.4 billion, with additional wrongful payments attributed to human error both by claimants and the DWP itself. The DWP plans a phased implementation of these measures, initially targeting accounts with substantial overseas activity or those surpassing the savings threshold for Universal Credit eligibility. Yet, the specifics regarding compliance thresholds for banks remain vague. In response to these legislative changes, Work and Pensions Secretary Liz Kendall assured that the new powers would be balanced with necessary safeguards, including an annual independent review of their application.