Bank Charges and Benefits
If your claiming benefits, bank charges can be devastating. If you are receiving £65 a week whilst claiming Job Seeker’s Allowance and the bank charge you a £25 unauthorised overdraft fee, this is over a third of your income taken away!
Cashalerts.co.uk has good news. If you are claiming benefits, the banks have no right to access your money. It is called the Act of First Right of Appropriation. This article shows you all you need to know about bank charges on benefits.
Let’s imagine the following scenario. You lose your job and you are struggling to find employment. To help you make ends meet, you claim Job Seeker’s Allowance (JSA) and Housing Benefit. JSA is approximately £65 a week. This is the minimum the government states you need to live on (well, let’s face it, ‘survive’ on). Your rent is £400 per month and so you claim housing benefit of around £200 every two weeks which is paid directly into your bank account to cover the Direct Debit payments to your landlord (For some reason, housing benefit is no longer paid directly to the landlords).
However, last month, a 50p invoice was presented to your bank for an online auction you listed last month and forgot about, plus another Direct Debit is presented which is declined due to insufficient funds. Your bank charges you £25 per presented item and you are left with £14 for the rest of the week once the £50 charge has been automatically deducted by your bank. That is £50 less than the government state you need to survive on! THIS IS OUTRAGEOUS!
Let’s look at another scenario. You are overdrawn on your agreed overdraft and you receive the £200 due for your rent. The bank then use part of that to return your account to its agreed overdraft level. You are then unable to pay your rent and face the prospect of eviction because the ‘bank feel they need that money more than you need to have a home!e’.
So what can you do about it? Well, there are a few things.
Firstly, while you are in receipt of benefits, it may be a good idea to open up a basic bank account. The law dictates that most people in the UK is entitled to a basic bank account. You do not have to worry about credit checks as these type of accounts do not offer credit facilities (no overdrafts, no cheque books and no debit cards). However, you will still struggle to open an account if you are an undischarged bankrupt. You will be provided with a cash card to withdraw cash from ATMs or some banks will provide SOLO cards so you can make purchases in shops and online. If you feel you really need a card to make purchases with either in-store or online, then you can still apply for a pre-paid Mastercard. The most recommend one is the award winning Cashplus card and I use this myself as it is the only card that can be used to avoid Ryan Air booking charges and it is the only prepaid card that automatically insures all your purchases.
Once you open a basic bank account you can be sure that your benefits will not be swallowed up in charges and you can deal with the problems in your normal account with a roof over your head and a fridge with some food in!
However, what if you are already experiencing these problems within a basic bank account because you do not have the credit status to open a regular account? Well, in this case you will need to deal with these charges quickly and get the charges refunded as soon as possible.
Just because basic bank accounts were originally designed for people to have a place where benefits could be paid into, does not mean that the banks do not have the right to charge fees. In fact, the fees tend to be higher than regular banks (as always, people with the least money get charged the highest amounts!). The banks do not make profit from these accounts (in fact, they loose money from these accounts) and therefore will seize any opportunity to generate some money from these accounts that have been inflicted upon them by the government. The main way they can do this is by charging high fees for unpaid Direct Debits. For example, Alliance & Leicester charge £25 for an unpaid Direct Debit fee. They also charge a whopping £30 for a same day electronic transfer of money to someone else’s account!
Obviously, you will not experience going over your overdraft limit because you would not have an overdraft facility in the first place with a basic bank account but you if operate a regular current account then this still maybe the case.
So let’s get down to the facts (and the facts can be difficult to find with all the conflicting information out there). It is relatively easy to stop these charges plus get your previous charges refunded!
FACT - According to Kirklees council,
- the banks cannot take any of your benefits to pay off an overdraft.
- This applies to both housing benefit and Job Seeker’s Allowance.
Housing benefit is for just that, to pay your rent! The banks do not have the right to use that money in any other way. In theory, it is not your money – you are simply an agent for it as it has been awarded to pay rent only.
Your Job Seeker’s Allowance (JSA) is exclusively for you to live on which can be food, utility bills and travel expenses.
These rights are protected under the First Right Of Appropriation or First Right Of Appropriation Of Funds Order. This order can only be implemented if you inform your bank in advance (at least one week) where you want your benefits paid now and in the future. You will need to do this in writing. For example, you will, let’s say you wanted to use your first right of appropriation to ensure the bank did not use your housing benefit to pay for any charges. You could write …
“On the 1st of each month starting April 1st, my housing benefit of £400 will be paid into my account (account number – 0101010101). I am exercising my first right of appropriation over these funds and wish you to pay the following item from it:- £400 direct debit payable to my landlord, Smith residential on the 20th of each month.
The housing benefit is paid by my local council for the sole purpose of financing my rent and I would be grateful if other payments out of my account do not interfere with this payment”
If you refer to the future payments, you will not need to write a letter every month.
What about Job Seeker’s Allowance? Well, again, writing at least one week in advance you could write the following …
“On Monday March 8th and every other Monday from then on until further notice, my government benefit, Job Seeker’s Allowance of £128 will be paid into my account (account number – 01010101). I am exercising my right of appropriation over these funds and wish you to not allow other payments out of my account to interfere with these funds. The £128 is the minumum amount the Government says that I need for day to day living expenses and is paid to me for this sole purpose.”
As always, keep a copy of the letter on your computer. It is highly unlikley your bank will allow you to use your right to appropriation for very long and if you are in receipt of JSA, it is vital to cancel as many Direct debits as you can. All utillltiy companies will allow you to pay without Direct Debits. Even though this is more expensive, it is cheaper than bank charges! Incidently, if you are on BT and can’t pay via Direct Debit you should consider applying for BT Basic. This package has been designed for people of low incomes and doe snot penalise people for not paying via Direct Debit.
Anyway, I digress! Now you have requested the banks to leave your future JSA and housing benefit alone, you should also claim a refund for your previous bank charges since you have had JSA and or housing benefit paid into your account using the first right of appropriation.
At the bottom of this post you can download a first right of appropriation letter I wrote which also requests refunds for previous charges. It worked for me and I was fully refunded within a week.
Please leave me comments as to how you get on with your claim!
For more information about the First Right of Appropriation, call into your local Citizens Advice Bureau.
You can get more information about the “first right of appropriation” from the Citizens Advice Bureau website or call into your local office.
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