DWP Reveals Which Bank Accounts Will Be Subject to Fraud Checks

The UK government is planning a significant clampdown on benefit fraud, including measures that involve increased scrutiny of bank accounts belonging to benefit recipients. The Department for Work and Pensions (DWP) has proposed new regulations aimed at identifying fraudulent activity, recovering overpaid benefits, and saving taxpayers millions. However, the plan has sparked debate among banks, consumer advocates, and legal experts over its potential risks and implications.

Detect Fraud

The DWP’s new strategy includes stricter monitoring of bank accounts associated with benefit claimants. Initially, this will focus on:

• Accounts showing consistent overseas activity.
• Accounts holding more than £16,000, which exceeds the savings threshold for Universal Credit eligibility.

The measures are expected to expand over time, eventually leading to a fully automated fraud detection system capable of flagging irregularities and recovering overpaid funds.

Direct Deduction Orders

Under proposed legislation, the DWP would be empowered to recover funds directly from claimants’ bank accounts without requiring a court order. These direct deduction orders would allow the department to:

• Recover benefits debt from individuals who are no longer receiving benefits.
• Address overpayments from self-employed claimants and those outside the PAYE system.
• Reduce reliance on the court system for debt recovery.

Claimants would be charged an administrative fee by their banks for each deduction.

Safeguards and Review Process

To prevent undue hardship, the DWP would be required to review:

• Three months’ worth of bank statements for each claimant before making deductions.
• Whether the deduction would leave the claimant unable to cover essential living expenses.

An independent body would also conduct annual reviews of the program to ensure accountability.

Banks and Advocacy Groups

While the government argues these measures are necessary to curb fraud and save taxpayers an estimated £500 million annually, the proposals have drawn criticism.

Consumer Protection

The banking sector, represented by UK Finance, has expressed concerns about potential conflicts with the Financial Conduct Authority’s (FCA) consumer duty, which came into effect in 2023. The duty requires banks to:

• Protect vulnerable customers.
• Ensure their actions align with consumer rights and financial well-being.

Banks that violate these rules risk penalties from the FCA or action from the financial ombudsman.

Risk of Overreach

Banks are particularly apprehensive about being compelled to share account holder details (e.g., name, date of birth, and account number) when claimants are suspected of being overpaid. Currently, such information can only be requested on a case-by-case basis if fraud is suspected.

Critics warn that broadening access to financial data without sufficient safeguards could undermine consumer privacy and create risks for vulnerable account holders.

Administrative Costs and Fees

The new regulations would allow banks to charge claimants fees for processing direct deductions. Advocacy groups argue this could unfairly burden low-income individuals already struggling with financial instability.

Fraud and Errors

According to the DWP’s latest figures, benefit overpayments due to fraud reached £7.4 billion last year, representing 2.8% of total welfare spending.

• Unintentional claimant errors accounted for £1.6 billion (0.6%).
• DWP mistakes contributed to £0.8 billion (0.3%).

Work and Pensions Secretary Liz Kendall emphasized that new safeguards, including independent reviews, will ensure the system operates fairly while addressing fraud effectively.

Testing and Implementation

The new system will be piloted with a limited number of banks and building societies, with plans for gradual implementation and full rollout by 2029.

The government’s proposed measures to combat benefit fraud reflect a strong commitment to reducing financial losses in the welfare system. However, the approach has raised concerns about balancing fraud prevention with consumer protection and ensuring vulnerable claimants are not unfairly targeted. As the plan moves forward, ongoing dialogue between the government, financial institutions, and advocacy groups will be critical to refining the system and addressing its potential risks.

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