Benefits and the Social Security Administration Act
Social Security Administration Act and Tax Credits Act
The two Acts of Parliament that govern how benefits are paid are the Social Security Administration Act 1992 and the Tax Credit's Act 2002. Both of these have clauses which apparently make it unlawful for banks to impose bank charges on benefits:
Social Security Administration Act 1992 Section 187:
Tax Credits Act 2002 Section 45:
HOWEVER by 'charges' they DO NOT MEAN BANK CHARGES. What is meant is things like attachment of earnings and charging orders.
Although there is some ambiguity, if you took a case to reclaim bank charges to court based on s187 of the Social Security Administration Act 1992 or s45 of the Tax Credits Act 2002 the court would almost certainly find against you.
No one is saying that the banks have the right to take money from benefits, only that you can't use the Social Security Administration Act 1992 or the Tax Credits Act 2002 to stop them. Money taken from benefits is unlawful - but unlawful by virtue of the Unfair Terms in Consumer Contract Regulations 1999 and the common law on penalties in contracts , not under the Social Security Administration Act 1992 or Tax Credits Act 2002 (unfortunately).
A Barrister's view:
I researched this topic some time ago, and my understanding of the application of this section is as follows:
Any assignment of your state benefits or pension is void and unenforceable. That is to say, no person or organisation can collect your state benefits/pension in your place as settlement of a debt (subject to certain exceptions involving state institutions). As a result, you could not instruct the DWP to pay your benefits to a 3rd party, and a 3rd party could not enforce any agreement that gives your state benefits to them. This was introduced at the end of the 1800s to stop the first state benefits (such as war pensions) being taken by unscrupulous 3rd parties, which happened an awful lot.
However, under current banking law, once your benefits (or indeed, any other income) is paid into your account, it is no longer classified as your benefits; it becomes part of a generic monetary debt owed to you (if your account is in credit) or owed by you (if your account is in debit). Think of your benefits as a glass of water, and your bank account as a water tank. S.187 effectively strikes down any agreement that stops your weekly glass of water going into your water tank and/or going to somebody else's water tank. That water is for you and you alone. However, once you have put it into your water tank, it is just becomes part of the whole collection of water that is in there, and can no longer be protected. The practical reason is that you couldn't identify which of those water molecules (your pennies) that came from your glass (benefits), and which were in there already.
The only way to protect your benefits is to have them paid into a separate account with a separate bank, which avoids any set-off (think of this as the bank linking up any water tanks that you have with them to get the overall amount of water you have stored with them or borrowed from them). A number of banks work with fast transfer payments, so you should be able to move your money from your benefits account with one bank to another account with another bank (such as your house or bills account) within two hours. This is the best way to protect your benefits from everyone and anything.
Tom Brennan, Barrister
Government Response to Petition
“We the undersigned petition the Prime Minister to compel the High Street banks to obey the law on state benefits.”
Details of Petition:
“It is government policy that people on state benefits (income support, tax credits, etc) have their benefit paid into a bank account. All High Street banks impose charges on banking accounts for going overdrawn, not having funds to cover a direct debit,etc. In the case of accounts which have money from state benefits payed into them , such charges are contrary to section 187 of the Social Security Administration Act 1992 or section 45 of the Tax Credits Act 2002. However, the High Street banks continue to ignore this legislation. This petition is to request the Prime Minister to compel the High Street banks to obey the law.”
The Government’s response
The purpose of the Social Security Administration Act 1992 Section 187 and section 45 of the Tax Credits Act 2002 is to prevent people’s benefit money being at risk by it being assigned over to a third party in settlement of a debt. It is not intended to prohibit the application of bank charges. Bank charges are in the nature of an expense, and are incurred by the holder of the account; tax credits and benefits are payable in order to help customers meet their expenses, and as such it is legitimate for banks to deduct charges from the balance of an account held in that bank, whether the money paid into the account comes from tax credits, benefits or other sources, such as earnings.
Full response here: