Take it away

16-03-2005

CAB evidence on the DWP third party deductions scheme and financial inclusion

Take it away ( 140kb) - CAB evidence on the DWP third party deductions scheme and financial inclusion

Summary

HM Treasury has proposed to extend the Department for Workd and Pensions' third party deduction scheme to debts to private sector and third sector lenders where normal repayment arrangements have broken down.  The proposal forms one of a number of recommendations to improve access to affordable credit.

The facility for direct deductions from benefit for debts and ongoing commitments has been and remains essential for many benefit claimants to prevent repossession and homelessness, safeguard supplies and enable them to pay, and their creditor to receive regular, if small, payments towards their debts and avoid further debt recovery and transaction costs such as counter fees.

Benefit levels are low and cannot sustain substantial deductions from essential living expenses.  There is no overall cap on the value of deductions for debts and ongoing commitments that can be made from one person's benefit.  There needs to be a fine balance between access to a scheme which manages indebtedness and the need to leave people with adequate basic income.

Whilst the total number of third party deductions has fallen since 1997, the proportion of income support claimant with one or more deductions from benefit has risen substantially and is now 45.6 per cent.  This shows that there is a continuing need for the scheme.  Although the introduction of direct payment of benefit into bank accounts provides an alternative method of paying direct debts by direct debit or standing order, third party deductions from benefit are still going to be needed, particularly by those whose benefit is paid into a Post Office card account or by cheque.

Access to the third party deduction scheme could reassure lenders that they will be able to lend to more people on low incomes at better rates of interest.  It could reassure the consumer that if they do fall into arrears they can avoid formal debt recovery action and costs via the scheme.

Social Policy contact: Sue Edwards Social.policy@citizensadvice.org.uk

Take it away ( 140kb) - CAB evidence on the DWP third party deductions scheme and financial inclusion