Can a bank take Housing Benefit to pay an overdraft?

No they cannot take ANY benefits.

Banks are not allowed to use Housing Benefit or any other income related benefits to repay an overdraft as the law provides that a customer needs a minimum amount of money to live on. Arguably, the money is not actually the claimant’s, they are just the agent to pass the money along to their landlord. If the Bank do use this money to offset an overdraft the customer should be advised to seek legal advice or contact a CAB for further help and claim back any charges.

This is called First Right of Appropriation

Benefit claimants receiving direct payment of Housing Benefit into their bank accounts may be able to protect those payments from being used by the bank to meet authorised or unauthorised overdrafts built up by the customer and guarantee that they are used only to pay the rent to their landlord

Even if an account is overdrawn, a customer can choose how any further money paid into the account is used (for example to pay rent) using this ‘first right of appropriation’. It is necessary however for the customer to contact their bank with new instructions, usually, each time they make a deposit.

Information and example of right of appropriation letter 

Last updated: Monday 18th January 2016 09:41:56 AM