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Chapter D4: Loan interest payments paid direct to qualifying lender UC, JSA & ESA

Contents
D4001:Introduction
Definitions
D4002:Qualifying lender
D4003:Meaning of loan interest payments
D4004:Meaning of relevant claimant ..... ........................................................
D4005:Meaning of specified benefit
D4006:Meaning of standard rate
D4008:When direct payments of loan interest can be made
Determining the amount to be paid to a qualifying lender
D4010:Direct payments in respect of one loan only
D4013:Direct payments in respect of more than one loan
D4018:Direct payments in discharge of borrower's liability
D4019:Application by qualifying lenders of any amount which exceeds liability
D4022:Provision of information
D4026:Recovery of sums wrongly paid

Chapter D4: Loan interest payments paid direct to qualifying lender UC, JSA & ESA

D4001 Introduction

There are two schemes for deductions in respect of housing costs which are
1. loan interest payments, paid directly to lender (see D4002 et seq)1 and
2. third party deductions for housing costs (see D2090 et seq)2.
1 UC, PIP, JSA & ESA (C&P) Regs, reg 59 & Sch 5; 2 reg 60 & Sch 6
Definitions

D4002 Qualifying lender D4001

A qualifying lender (1) is
1. a deposit taker (2)
2. an insurer (3)
3. any county council, county borough council, district council, or London
Borough Council (4)
4.
the Common Council of the City of London (5)
5. any
council (6) under specified legislation (7) :
6.
the Council of the Isles of Scilly (8)
7. any new town corporation (9)
8. the Regulator of Social Housing (10)
9. the Greater London Authority (11)
10. any body (12) incorporated under specified legislation (13) whose main objectives
include making loans secured by
10.1 a mortgage or charge over land or
10.2 a heritable security, (in Scotland).
1 SS A Act 92, s15A(3); UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(1);
2 SS A Act 92, s15A(3)(a); 3 s15A(3)(c); 4 s15A(3)(d); 5 s15A(3)(e);
6 s15A(3)(ee); 7 Local Government etc (Scotland) Act 94, s2; 8 SS A Act 92, s15A(3)(f);
9 s15A(3)(g); 10 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(1); 11Sch 5, para 1(1);
12 Sch 5, para 1(1); 13 Companies Act 85

D4003 Meaning of Loan Interest Payments

Loan interest payments (1) are payments of interest on a loan that is secured on the
accommodation in respect of which the claimant meets the occupation condition.
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(1); 1 UC Regs, Sch 1, para 5

D4004 Meaning of relevant claimant

Relevant
claimant (1) means a claimant
1. who is entitled to UC and
2. whose maximum amount of UC includes the housing costs element and
3. whose amount of housing costs element is calculated by reference to loan
interest payments (whether or not that amount is calculated by reference to
any other description of payment).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(1) & para 2(1)

D4005 Meaning of specified benefits

Specified benefits (1) in relation to a relevant claimant means
1. UC and
2. if the maximum amount to which the relevant claimant is entitled for UC is insufficient
2.1 new style JSA (hereafter referred to as JSA) or
2.2 new style ESA.(hereafter referred to as ESA)
Note: ADM chapter M1 contains guidance on the meaning of new style JSA and
new style ESA.
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(1) & para 2(2)

D4006 Meaning of standard rate

Standard rate means (1) the standard rate of interest determined under specified
legislation (2).

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(1); 2 UC Regs, Sch 5, para 12

D4007

References to a relevant claimant, who meets the payment condition or the liability
condition (1), are to a claimant who meets those conditions in accordance with
specified legislation (2).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 1(2); 2 UC Regs, reg 25

D4008 When direct payments of loan interest can be made D4009 D4010 D4013 D4014 D4018 D4019 D4027

Loan interest payments can be made directly to a qualifying lender (1) where
1. the loan was made in respect of loan interest payments which are payable to
a qualifying lender (2) and
2. the relevant claimant, or either joint claimant, meets the payment and liability
condition in respect of loan interest payments on the loan (3) and
3. those payments are taken into account in calculating the amount of housing
costs element to be included in the relevant claimant's award for UC (4) and
4. the amount included in respect of those payments is calculated by reference
to the standard rate (5).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 3(1); 2 Sch 5, para 3(2)(a);

3 Sch 5, para 3(2)(b); 4 Sch 5, para 3(2)(c); 5 Sch 5, para 3(2)(d)

D4009 D4018 D4019 D4027

The part of the specified benefits which is paid under D4008 is the amount
calculated under D4010 to D4016 in respect of the relevant claimant (1).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 3(3)
Determining the amount to be paid to a qualifying lender

D4010 Direct payments in respect of one loan only D4009 D4011 D4012 D4012 D4015 D4029

Where the circumstances in D4008 apply to a relevant claimant in respect of one
loan only, the calculation (1) of the amount that is to be paid direct to a qualifying lender is
1. the amount in respect of the loan interest payments (2), calculated in accordance
with specified legislation (3)
2. minus, a sum equivalent to the amount which represents the payments in
respect of the loan interest that is being made under a policy of insurance
taken out by a relevant claimant to insure against risk of not being able to
maintain repayments of loan interest to the qualifying lender (4).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 4(1); 2 Sch 5, para 4(1) Step 1;

3 UC Regs, Sch 5, para 10; 4 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 4(1) Step 2

D4011

Payments falling within D4010 2. apply, where a payment is being made under an
insurance policy taken out by the relevant claimant to insure against the risk of not
being able to maintain repayments of loan interest to a qualifying lender (1).

PIP, JSA & ESA (C&P) Regs, Sch 5, para 4(2)

D4012

The amount to be paid direct to the qualifying lender in respect of the relevant
claimant is
1. the amount resulting from D4010 (1) or
2. where the aggregate amount of all the specified benefits is less than the
amount resulting from D4010, the aggregate amount of all those benefits less
1 penny (2).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 4(3)(a); 2 Sch 5, para 4(3)(b)

D4013 Direct payments in respect of more than one loan

Where the circumstances in D4008 apply to a relevant claimant in respect of more
than one loan, the DM may pay an amount to each of the qualifying lenders to whom
loan interest payments are payable (1).

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 5(1)

D4014 D4015 D4016 D4016 D4016 D4016 D4017

Where loan interest payments on two or more loans are payable to the same
qualifying lender, the amount to be paid directly to that lender (1) is found by
1. calculating the amount for each loan (2) in accordance with D4008 and
2. adding those amounts together (3).

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 5(2); 2 Sch 5, para 5(2)(a); 3 Sch 5, para 5(2)(b)

D4015 D4016 D4016 D4016 D4016 D4017

Where loan interest payments are payable to more than one qualifying lender, the
amount to be paid directly to each lender (1) is
1. where loan interest payments are payable to a qualifying lender in respect of
one loan only, calculating (2) the amount in accordance with D4010 or
2. where loan interest payments are payable to a qualifying lender in respect of
more than one loan, calculating (3) the amount in accordance with D4014.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 5(3); 2 Sch 5, para 5(3)(a); 3 Sch 5, para 5(3)(b)

D4016 D4009 D4017

The amount to be paid directly to the qualifying lender in respect of the relevant
claimant (1) is
1. the amount resulting from the calculations at D4014 or D4015 in respect of
that lender (2) or
2. where the aggregate amount of all the specified benefits is less than the sum
of the amounts resulting from D4014 or D4015 (3), the amount determined by
2.1 the overall total of the amounts to be paid directly to the qualifying
lender is the aggregate amount of all the specified benefits less one
pence 4 and
2.2 that amount (5) is to be paid directly to qualifying lenders when
2.2.a
the qualifying lender where the amount resulting from D4014 or D4015is the largest, is to be paid first (6) and
2.2.b if anything else remains, the qualifying lender where the
amount resulting from D4014 or D4015 is next largest, is to be
paid next, and so on until nothing remains (7).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 5(4); 2 Sch 5, para 5(4)(a); 3 Sch 5, para 5(4)(b);

4 Sch 5, para 5(5)(a); 5 Sch 5, para 5(5)(b); 6 Sch 5, para 5(5)(b)(i); 7 Sch 5, para 5(5)(b)(ii)

D4017 D4029

In the application of D4016 2.2, in any case where the amount resulting from D4014
or D4015 is the same, in respect of two or more qualifying lenders, the available
amount is to be divided equally between them (1).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 5(6)

D4018 Direct payments in discharge of borrower's liability

Where a direct payment is being paid under D4008 to D4009 to a qualifying lender in
respect of a relevant claimant, that lender must apply the amount of the payment
towards discharging the liability to make loan interest payments, in respect of which
the direct payments were made.
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 6

D4019 Application by qualifying lenders of any amount which exceeds liability

The guidance within D4019 to D4021 applies, where, in respect of a relevant
claimant (1)
1. any direct payment is made under D4008 and D4009 to a qualifying lender
and
2. the amount paid exceeds the amount of the loan interest payments payable.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 7(1)

D4020

Unless D4021 applies, the qualifying lender must apply the amount of the excess (1)
1. first, towards discharging the amount of any liability of the relevant claimant
for arrears of loan interest payments, of the loan in question and
2. second, if any amount of the excess is remaining, towards discharging any
liability of the relevant claimant to repay
2.1 the principal sum (capital) in respect of the loan or
2.2 any other sum payable by the relevant claimant to that lender, in
respect of the loan.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 7(2)

D4021 D4019 D4020

Where loan interest payments on two or more loans are payable to the same
qualifying lender, the lender must apply the amount of the excess by
1. first
paying off any arrears of loan interest payments in respect of the loan for
which the excess amount was paid; and
2. second,
if any amount of the excess is then remaining, towards discharging
any liability of the relevant claimant to repay
2.1 in respect of the loan referred to in 1., the principal sum (capital) or any
other sum payable by the relevant claimant to that lender or
2.2 in respect of any other loan, any sum payable by the relevant claimant
to that lender where the liability to pay that sum has not already been
discharged.
Note: DMs should be aware that it is the qualifying lenders who will apply these
priorities and not the DM. It is a matter between the lender and the claimant. There
is no provision to allow the lender to repay the excess to the claimant.
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 7(3)

D4022 Provision of information D4023 D4023 D4024 D4024 D4025

In respect of a relevant claimant, the qualifying lender must provide the DM with
information as to (1)
1. the loan interest payments for which the relevant claimant meets the payment
and liability condition
2. the amount of the loan
3. the purpose for which the loan was made
4. the amount outstanding on the loan
5. the amount of arrears of loan interest payments due in respect of the loan
6. any change in the amount of the loan interest payable
7. the redemption of the loan.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 11(1)

D4023

The information in D4022 1. to D4022 5. must be provided at the request of the DM where
1. a claim is made for UC or
2. the housing costs element is to be included in an award of UC, other than on
the making of a claim
and loan interest payments payable to the qualifying lender are taken into account in
determining the amount of the relevant claimant's housing costs element.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 11(2)

D4024

The information in D4022 4. or D4022 6. must be provided at such times as the DM
may determine.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 11(3)

D4025

The information in D4022 7. must be provided to the DM immediately once the
qualifying lender has received notice that the loan is to be redeemed.
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 11(4)

D4026 Recovery of sums wrongly paid

There may be disputes with lenders who refuse to refund payments that have been
wrongly paid.

D4027 D4030

A qualifying lender must at the request of the DM, repay any amount paid to the
lender under D4008 and D4009, which ought not to have been paid (1), where
1. an amount of loan interest payment payable to the qualifying lender ceases to
be included in the relevant claimant's housing costs element (2) or
2. a specified benefit ceases to be paid to a relevant claimant (3) or
3. the loan, in respect of which loan interest payments are payable, has been
redeemed (4) or
4. both the conditions in D4028 and D4029 are met (5).
1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 12(1); 2 Sch 5, para 12(2)(a);

3 Sch 5, para 12(2)(b); 4 Sch 5, para 12(2)(c); 5 Sch 5, para 12(2)(d)

D4028 D4027

The first condition (1) is that the amount of the relevant claimant's housing costs
element is reduced as a result of
1. the standard rate having been reduced or
2. the amount outstanding on the loan having been reduced.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 12(3)

D4029 D4027

The second condition is that no corresponding reduction was made to the amount
calculated in respect of the qualifying lender under ADM D4010 - D4017.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 12(4)

D4030

A qualifying lender is not required to make a repayment in the circumstances
described in D4027 1. or 2. unless the DM's request is made before the end of the
period of 2 months starting with the date on which the change described in that
provision ceased.

1 UC, PIP, JSA & ESA (C&P) Regs, Sch 5, para 12(5)

D4031

The Third Party Payments (TPP) team (part of Payment Resolution Service) who are
based at Norcross act as paying agents and are responsible for all payments to third
party creditors. Any queries regarding the recovery of sums wrongly paid in respect
of loan interest payments should also be directed to TPP. Recovery of loan interest
payments is covered within Debt Management's Overpayment Recovery Guide.