Ministry of Justice – Proposal for Mental Capacity Small Payments Scheme

The Ministry of Justice (MoJ) has published a consultation proposing to implement a small payments scheme for individuals to access funds on behalf of those who lack mental capacity. The proposed scheme would allow individuals to enter into an agreement directly with financial services firms including credit unions to access to a small sum on a short-term basis, on behalf of another individual lacking mental capacity. This briefing provides the background to this proposal, sets out the detail of the scheme proposed and requests feedback from ABCUL members on the proposal.

Background to the Consultation

At present, individuals can apply for arrangements to access another individual’s assets on their behalf if they lack mental capacity to manage their own financial arrangements. This application process is administered by the Court of Protection (CoP), that can grant either a temporary access to funds or long-term, supervised deputyship arrangement on behalf of the individual lacking mental capacity. Some financial services firms have been granting access to small funds on behalf of those lacking mental capacity on an informal basis unbacked by legislation.

The CoP process currently entails the completion of four separate forms, a £371 fee (that can be waived in certain circumstances), a 21-week period until the release of funds and, in the case of a full deputyship, further supervision costs including an £320 annual fee. These aspects of the CoP process all present barriers to applications in situations where the cost, time scale and complexity of applying is disproportionate to the amount of funds involved.

The MoJ expect that individuals that would need or benefit from short term access to funds on behalf of an individual lacking capacity are not applying due to these barriers. This observation has been made in particular with maturing Child Trust Funds, which have a relatively small value on average. However, following engagement with the disability sector, the MoJ believes this issue extends to a number of other situations where the process to access funds on behalf of individuals without mental capacity. As a result, the MoJ believes a formal payments scheme would be appropriate to grant access in cases where access to small sums is sought on a short-term basis.

Proposal for a New Payments Scheme

The scheme proposed would allow the recipient of funds to enter into an agreement directly with the financial services firm, rather than applying to the CoP. The consultation clarifies that the scheme would allow “payments to be made for a fixed period enabling the specific needs of a person without mental capacity to be met while more permanent arrangements are put in place”. The following details of the scheme are proposed:

• Financial services firms, including credit unions, would run the scheme directly.
• Access to payments will be granted for a six-month period, up to a maximum value of £2500. If the £2500 maximum value has not been reached, a single extension of another six-month period will be allowed.
• The scheme can only be used once for the individual with limited mental capacity across all their accounts and cannot be used again by a different applicant.
• Firms would ask applicants to consider a deputyship and applying to the CoP where appropriate. A one-off order and deputyship process will be more suitable in cases involving larger funds or more complex finances.
• The scheme would apply to a range of accounts, primarily those cash based. All shares in a credit union would qualify apart from those where access is denied via the terms of those shares, such as a deferred share, attached shared, non-mature CTFs and Junior ISAs.
• The scheme would apply to all people, of all ages, without the mental capacity to manage their financial affairs. However, the consultation asks if the scheme should also include those with ‘fluctuating loss of capacity’.
• It is being consulted on as to whether the payments scheme should apply to either/or cash withdrawals and directs payments for goods and services.
• It is also being consulted on whether a central register should be put in place for the scheme. Such a register would prevent fraud through reapplication but would also likely entail a small fee for applicants to cover the cost of maintaining the register.

The MoJ provides the flowchart below in the consultation to represent the process for firms managing the small payments scheme.

The consultation proposes a few measures to prevent the scheme from being used for fraudulent activity and exploitation of vulnerable people. The applicants will be asked for their reasons for application, to declare what the funds will be spent on and information on the account holder’s suitability. To verify the lack of mental capacity of the account holder the certification will need to be provided from a registered medical practitioner (such as a GP, nurse, psychologist, or social worker) and checked by the financial services firm. The firm would also need to notify both the account holder and a referee known to the account holder of the application, giving them both two weeks to respond and challenge the application if necessary.

The consultation seeks feedback on two different approaches for firms to test the suitability of applicants to the scheme, with the following options proposed:

1. Approach A would restrict applications to those with an existing authorisation to access or manage the vulnerable person’s funds – such as the established ‘named contacts’ for CTFs, or DWP appointees – to apply to the scheme. This would draw on the prior suitability checks conducted by other organisations to strengthen the security of the scheme and avoid burdening firms with the administration of checks.
2. Approach B would be more open, asking applicants to demonstrate their suitability through the application process, setting out their relationship to the person, why they were applying, their trustworthiness (based on their exercise of responsibility elsewhere). Financial services firms would have to take a decision based on this application and the views of the referees, directing anybody rejected to the CoP if they still want to obtain access to funds.
   

Feedback on Consultation

The Ministry of Justice is seeking feedback from a range of parties, including financial services firms, on the relevance and practicality of the small payments scheme proposed. The intention of the proposal is to not negate the need for the CoP process, but to provide a simpler and short-term solution for the situations where applying to the CoP for access to funds is disproportionately long or costly.

ABCUL does not currently object to the introduction of a mental capacity small payments scheme, given that many firms were already providing a similar process on an informal basis and that such a scheme has been identified as beneficial to vulnerable individuals.  However, we would like our credit union members to share feedback if they have any concerns or thoughts on the details of the scheme proposed, to inform ABCUL’s response to the consultation. Some key questions to consider would be:

• Do you see a need for a formal scheme?
• Should financial services firms, including credit unions, be responsible for administering the scheme?
• Is it feasible for your credit union to be able to administer the scheme and involved security checks?
• Should there be a central register for the scheme at a small cost to applicants?
• Which approach should be adopted for applicant suitability for the scheme – approach A or approach B?
• Should the scheme apply to either/or cash withdrawals and directs payments for goods and services?
• Do the fraud prevention measures sound sufficient?

Many firms are already providing a similar but ad-hoc process to the scheme proposed, without legislation backing their actions, so we are keen to hear from credit unions that have experience in granting access to funds on behalf of those without mental capacity to act on an informal basis.