The DWP is set to scrutinize certain bank accounts for fraud, raising concerns among banks about consumer protection.
Glasgow: The UK government is in a bit of a pickle over plans to crack down on benefit fraud. This could put banks in a tough spot with consumer protection laws.
The Department of Work and Pensions (DWP) has shared details on which bank accounts will be under the microscope. They’re looking at accounts with regular overseas transactions or those holding over £16,000, which is the limit for Universal Credit.
Over time, they plan to expand these fraud checks, aiming for a fully automated system to catch any funny business. This would let the DWP recover funds without needing a court order, which they think will speed things up and help tackle fraud more effectively.
But UK Finance, which represents British banks, is worried. They think these plans might clash with their efforts to protect vulnerable customers. Daniel Cichocki from UK Finance pointed out that the proposals need a closer look to avoid creating risks for those who need extra help.
He stressed the importance of fighting fraud but also said the government should focus on preventing fraud from slipping into the benefits system in the first place. There are concerns about how these plans might conflict with the Financial Conduct Authority’s (FCA) consumer duty, which aims to protect financially vulnerable folks.
If a bank doesn’t follow these rules, they could face penalties from the FCA or action from the financial ombudsman. Banks are also anxious about new rules that would require them to share claimants’ account details if there’s a hint they might have been overpaid benefits.
Right now, the DWP can only ask for financial details if there’s a suspicion of fraud, and it’s done on a case-by-case basis. They believe that having broader access to banking info will help them spot potential fraud cases that might otherwise go unnoticed, aiming to save taxpayers around £500 million a year once everything’s up and running.
The new system will start with a few banks and building societies, with a gradual rollout planned before a full launch in 2029.
This strategy comes after years of trying to get banks more involved in tackling benefit fraud. Previous attempts by the Conservative government didn’t make it through Parliament before last July’s election.
Currently, the DWP can recover benefits debt from claimants through the welfare system or deduct money from employed claimants via PAYE. They argue that being able to directly recover funds from bank accounts would help reclaim money from those no longer on benefits or who are self-employed, easing the burden on the court system.
Under the new rules, the DWP could make banks transfer benefits debt through “direct deduction orders.” Banks could charge claimants a fee to cover their costs.
Before making any deductions, the DWP would need to check three months’ worth of bank statements to see if the deduction would cause hardship for essential living expenses. Last year, overpayments due to fraud hit £7.4 billion, about 2.8% of total welfare spending.
Additionally, £1.6 billion was overpaid due to unintentional errors by claimants, and £0.8 billion was due to mistakes made by the DWP.
Work and Pensions Secretary Liz Kendall mentioned that the new powers would come with “new and important safeguards,” including an annual review by an independent body.
