The Eligible Loan Deductions Scheme (ELDS) is a joint DWP and Treasury initiative to support the expansion of affordable credit to people on low incomes. It is part of the government strategy for reducing financial exclusion.
Using the scheme, we aim to increase the supply of affordable credit for people on low income, including people on benefit. Under the scheme we can make deductions from benefit, in certain circumstances. This reduces the risk of people defaulting on loan payments which reduces the cost of lending to people on low incomes.
The participating organisations are from the not-for-profit sector such as credit unions and community development finance institutions. Organisations taking part are referred to as ‘lenders’ and have demonstrated to DWP that they meet approved responsible lending criteria.
1. How the scheme works
Lenders apply to DWP to recover loans from benefits paid to claimants. The loans must:
- meet approved responsible lending criteria
- have fallen into arrears
- have repayment arrangements that have broken down
Before we can consider making deductions from benefit, lenders must demonstrate that they have tried other reasonable means to collect repayments.
We will pay agreed deductions from benefit to eligible lenders into their bank account every 4 weeks.
1.1 Applying to join the scheme
To join the scheme you must meet the DWP’s criteria and provide supporting evidence using the application form to join the scheme.
Your application must be signed by your Managing Director, Chief Executive or person of similar authority.
We keep your application details on a central database of all lenders taking part in the scheme. This is solely for the purpose of management information. DWP is bound by the terms of the Data Protection Act and will treat all information in the strictest confidence.
If you want to apply to join the scheme, please complete the application form and send it by post, with any supporting documents, to the address shown on the form.
2. Memorandum of understanding
All eligible lenders must agree a memorandum of understanding (MoU) with DWP. An MoU details:
- the level of service that you must meet
- your roles and responsibilities
- the terms and conditions you must comply with
Read the specimen memorandum of understanding before making your application. If your organisation meets the required criteria and we can accept you onto the scheme, we will send you an MoU to sign.
3. When to make a referral to DWP
We can only consider making deductions where loan repayments are in arrears. This is when the borrower has failed to make (and has not resumed) payments, either as originally agreed or as agreed in a subsequent re-negotiation for a period of 13 weeks before the date of referral to DWP.
In addition, the lender must have made reasonable action, short of going to court, to persuade the borrower to resume payments.
Before referring a case to DWP the lender must take steps to contact the borrower to discuss the debt and to negotiate alternative repayment arrangements. As a minimum, the steps taken should include:
- writing to the borrower outlining the arrears position and the amount of the debt
- if there is no response, writing a second time
- if there is still no response, writing a third time, explaining that unless payment is resumed within 14 days, the case will be referred to DWP to consider making deductions from benefit to recover the debt – this must include a statement of the amount of outstanding debt
4. How to refer a case to DWP
When you have identified a loan balance you wish to refer to DWP you should complete referral form and send it to the address shown. This cannot be sent by email.
When you refer a case to DWP you must supply all of the details requested on the referral form. We will return the referral form to you for completion if you do not do this. This will delay the date we can start recovering the loan from benefit.
We cannot guarantee that we can make any deductions requested. We can only make deductions where all the appropriate benefit rules are satisfied including sufficient benefit being in payment.
DWP may have to return the referral without a full explanation of the reason why deductions cannot be taken. This is because certain information is covered by the Data Protection Act.
4.1 Notifying DWP of any changes
You must report any changes to the details that you provided at the time of application to DWP. Please follow the instructions about notifying DWP of any changes for the Eligible Loan Deductions Scheme.
5. Annual reviews
We will review each lender’s MoU annually to confirm any changes that may have occurred. We may also carry out visits to a sample of lenders to ensure conformity to the lender process.
6. Further information
If you require any further information about any aspect of the scheme then please contact the Eligible Loan Deductions Scheme on 0845 6037671.