Posts
GLC would welcome your thoughts and comments on the undernoted 'discussion paper' on pre-paid card charges deducted from customers in sole receipt of social security benefit. You can use the 'comment' section below; or e-mail us with a potential public interest case; see further below. Discussion paper: the legality of certain ‘pre-paid card’ charges deducted from social security benefits
Some ‘pre-paid cards’ appear to have been targeted at people on social security benefits[1]. Some cards charge a minimum £1.25 fee for each direct credit transfer (DCT) of benefit onto the card, and a minimum £1.25 fee for each cash withdrawal[2].
As benefits are alimentary in nature – in other words welfare payments designed to enable day-to-day life essentials to be purchased – people in receipt of benefit can ill afford to pay such charges for financial services. One question that arises is whether pre-paid card DCT charges or pre-paid card ATM withdrawal charges (‘the charges’) are lawful?
In general, social security benefits (which includes tax credits) are inalienable under social security law, and are not subject to assignation or charge (‘charge’ includes an arrestment[3]). Authority for this proposition comes from section 187 of the Social Security Administration Act 1992 and section 45 of the Tax Credits Act 2002. For example, section 187 of the 1992 Act provides:
187 Certain benefit to be inalienableFor the purposes of this brief discussion paper, we are interested in the contractual nature of the charges under Scots law. Might it be argued that the requirement to pay the charges (importantly, we are only focused on the specific charges mentioned in the first paragraph of this note) is truly a form of assignation between the claimant and the pre-paid card company? Not least because of the mandatory, automatic and cyclical nature of the arrangement.
(1) Subject to the provisions of this Act, every assignment of or charge on—
(a) benefit as defined in section 122 of the Contributions and Benefits Act;
(b) any income-related benefit; or
(c) child benefit,
and every agreement to assign or charge such benefit shall be void; and, on the bankruptcy of a beneficiary, such benefit shall not pass to any trustee or other person acting on behalf of his creditors.
(2) In the application of subsection (1) above to Scotland—
(a) the reference to assignment of benefit shall be read as a reference to assignation, “assign” being construed accordingly;
Traditionally in Scots law, assignation was a form of mandate[4]. If we take the following example: a benefit claimant (‘X’) is due to be paid by the DWP (‘Y’). If X instructs Y to make a payment to Z (a third party), Professor McBryde observes that such an instruction could be an assignation[5]. It will depend on whether the payment is in Z’s favour i.e. whether you are transferring a right, or part of a right, to a third party.
When benefits are paid into a basic bank account or Post Office Card Account (POCA) there is no payment in the third party’s favour. Instead, 100% of the funds are held on deposit on the customers behalf. But consider the position with some pre-paid cards?
When benefit is loaded onto some pre-paid cards, there is an automatic and mandatory alienation of some of the benefit, and therefore not all of the funds are held on the customer’s behalf; and each time the customer wishes to take out cash there will be an automatic deduction of some of the benefit (by the pre-paid card provider) before the cash is issued. These alienations cannot be evaded, and are a core term of the contractual agreement between the parties.
In other words, whenever benefit is loaded onto some pre-paid cards, it is fair to say that some of that benefit stands to be automatically paid over to the card provider, and some will be deducted if the customer wants to take out cash. It may be argued that this fixed arrangement is truly an assignation insofar as a portion of the benefit which is held on deposit is always alienated.
In entering into a contract and signing a ‘DP GEN’ form in favour of the pre-paid card company, the claimant is assigning – or transferring - a fixed proportion of his or her benefits to that company on a cyclical basis. There is no discretion per se. If that is so, then the contractual provisions as regards these charges could fall to be held as void by a court under s.187 of the 1992 Act, or the equivalent provision under section 45 of the 2002 Act.
Govan Law Centre would be very interested to test out these arguments before the court. If you are aware of someone who has been asked to pay such charges from social security benefits in Glasgow on a pre-paid card, please get in touch with Mike Dailly on m@govanlc.com
--------------------------------------------------------------------------------
[1] http://news.bbc.co.uk/1/hi/business/8475335.stm Some cards impose charges of 2.95% of the transaction, capped at £2.50 per transaction.
[2] For example: http://www.mygocard.co.uk/terms.html This is in additional to any charge that an ATM provider may require.
[3] North Lanarkshire Council v Crossan 2007 SLT (Sh Ct) 169
[4] Para 12-72, The Law of Contract in Scotland, Professor McBryde (2nd edn).
[5] At para 12-11, McBryde (2nd edn).
Hi Mike, i worked in Clyde & Fife bdc up unto recently and it was common knowledge amongst senior management that the DWP was some way down the track to creating its own prepaid card two years ago to replace the POCA account until Mandelson pulled the plug only because the post office unions kicked up a fuss. This would not have been a free card.
ReplyDeleteI have until recently liaised with COBAP within the DWP. Again it was common knowledge amongst some staff that the Post Office should be protected from the threat of prepaid penetration, fully aware that prepaid cards would sell in such figures as to jeopardise proposed and ongoing relationships with the Bank of Ireland. This was a real fear and the DWP will do all in its power and reach to reduce the impact of prepaid cards at the detriment to the POCA.
It's strange, reading over the weekend and following the story of Go-Card, my brother (who receives DLA) had recently purchased the card and we were discussing the pros and cons, and all he kept reiterating was it enabled him to play Warcraft on the internet. If his benefit's were unable to be paid onto his card he couldn't play his game and i know what he'd do, he'd withdraw the money from the Post Office and load it on via a Paypoint which would charge him more!! He's happy with his card and not everyone on benefits is a vulnerable customer who can't make their own informed decisions.
Terry.
Another case of Governemnt controlling the system and peoples individual ability for choice.
ReplyDeleteWhat about bank charges when overdrawn? Cost to customer is unacceptable as to alternative banking methods like credit unions, prepaid cards etc.
What exaclty is the freedom for those on benefits associated with the post office debit account?
This all makes for an exciting story, in an age where the consumer has more options, they should have the free will of choice, dont you think?
Anonymous - not really, as people in receipt of benefits do have a free choice of where their money is paid. The concern, is specifically with pre-paid cards that charge for loading-on the money, and charge for taking it out via a ATM. It you take your 'free choice'mantra as being some sort of absolute right, then should we do away with all regulation and protection for consumers - and revert back to the law of the jungle? No didn't think so.
ReplyDeleteI work for the Pension Service and we will not make payments to a pre-paid card under any circumstances.
ReplyDeleteI think the points raised here are interesting.
ReplyDeleteI ultimately believe we have to avoid stigmatising benefit claimants and say they shouldn't have the same choices as other consumers. However, in saying that I would commend the statement by the last contributor who works for the DWP. The DWP should not make payments to pre-paid cards under any circumstances, but should also make it easier for claimants to receive payments by cashable cheques as an alternative to having their money paid into accounts.
If someone wishes to pay their money into a pre-paid card after they receive it, I think that is their choice, even if some of us think it may be an unwise decision: people should be allowed to make their own decisions, even if it is a bad decision: to an extent that is.
I think the wider issue here is the complete lack of choice in the market with regards bank accounts and the charges they make.
I think from a legal point of view, paying money directly into a pre-paid card could be questioned particularly with regards the charges that are levied, as it could constitute an assignation: though whether the courts would see it that way is questionable. They may just see it as an informed decision. Once a claimant receives the money, however, and then "chooses" to credit a card I think would and probably should be harder to challenge on the basis the charges are an assignation.
My personal view is the DWP and Tax Credit and Child Benefit Office, as well as local authority housing benefit departments, refusing to credit these accounts is the preferred solution.
But the issues of even normal current account charges still needs to be dealt with, especially with some charging a £1 per day when a customer is in over draft: that is over 10% of personal allowance of a single person (£7 per week/£14 a fortnight). Are the DWP going to take a similarly principled stance against crediting these accounts? The charges in these cases could amount to more than that charged by pre-paid cards.