Eligible Loan Deduction Scheme

(Updated 30/05/25)

Why do you need to know?

The Eligible Loans Deductions Scheme (ELDS) enables credit union lenders to apply to the Department of Work and Pensions (DWP) to use benefit payments to recover loans which have fallen into arrears and where normal repayment arrangements have broken down.

The credit union must meet the responsible lending criteria to be part of the scheme.

Please read this information alongside the DWP guidelines available at: http://www.dwp.gov.uk/other-specialists/eligible-loan-deductions/

The Key Points

• The ELDS is a DWP/Treasury initiative to support the expansion of credit to people on low incomes as part of the Government’s Strategy for tackling financial exclusion. At the time of writing the scheme is only available to not-for-profit and third sector lenders which include credit unions.
• The scheme aims to increase the supply of affordable credit for people on low income, particularly people on benefit.
• Offering benefit deductions reduces the risk of non-payment, and therefore the cost of lending to people with low incomes.
• You must apply to the DWP to take part in the scheme, acceptance is based upon you demonstrating you are a responsible lender.
• You should take all reasonable steps to try to obtain repayments before referring a case to the DWP – including taking steps to negotiate alternative arrangements and to direct the borrower to a source of free and independent debt advice.

Putting into Practice

Applying to join the scheme

You must send in a completed application form to DWP, the form can be found at: http://www.dwp.gov.uk/other-specialists/eligible-loan-deductions/.

With your application you must also attach and send:

• your information leaflet for borrowers; 
• a copy of your loan application form;
• a copy of your loan agreement form;
• an income and expenditure assessment form; and
• a copy of your lending policy or Statement of Practices.

To demonstrate that you are a responsible lender you must:

• be registered as a credit union under the Industrial & Provident Societies Act 1965;
• hold a Category H License to enable the exchange of member information;
• carry out an appropriate risk assessment of the member’s ability to repay, based on their income and outgoings as part of the loan application process;
• provide the borrower with information of the full cost of the loan including APR before the agreement is signed;
• offer an opportunity for face to face service for loan applications should the borrower request it;
• ensure that the borrower is made aware that, in the event of default, the loan may be referred to the DWP for repayment by deduction from benefits.

Memorandum of Understanding (MoU)

The MoU is a document which outlines the level of service that must meet, your roles and responsibilities and the terms and conditions you must comply with.

By sending your application to the DWP you agree to enter into the MoU if you are subsequently accepted by the DWP to take part in the scheme.  You should read the MoU before sending the application.

If you are accepted on to the scheme, the MoU will be sent to you to sign. Once the signed MoU is sent back to the DWP the application process is finished.

The DWP will review the MoU annually and carry out visits to lenders to ensure conformity to the lender process.

Before making a case to the DWP

Loan repayments must be in arrears before deductions from benefit payments will be considered. This means that the borrower has failed to make, or resume, payments for a period of 13 weeks prior to the date of referral of the case to the DWP.

You must have made reasonable action, short of going to court, to persuade the borrower to resume payments. You should, as a minimum:

• write to the borrower outlining the arrears position and the amount of debt;
• if there is no response, write a second time;
• if there is still no response, write a third time, explaining that unless payment is resumed within 14 days, the case will be referred to the DWP for consideration of deductions from benefit to recover the debt, stating the amount of outstanding debt.

Making a case to the DWP

If, having taken the steps to try to obtain payments, there is a loan balance you would like to refer to the DWP you need to complete the DWP referral form, available at: http://www.dwp.gov.uk/other-specialists/eligible-loan-deductions. This form must not be sent via email.

You must supply all the details as requested on the form; if you don’t the form will be returned to you which can delay the implementation of recoveries from benefit.

Deductions cannot be guaranteed and can only be made where all the appropriate benefit rules are satisfied.

The DWP is bound by the terms of the Data Protection Act and will treat all information in the strictest confidence.