One of the housing associations involved in the Government’s direct payment demonstration projects has warned social landlords to get strict with their arrears policy ahead of Universal Credit after revealing it has taken five tenants to court over unpaid rent.

GreenSquare Group – which is partnering with Oxford City Council on one of the Department for Work and Pensions' (DWP) six demonstration projects paying housing benefit directly to tenants – issued the warning to landlords at a welfare reform briefing in London today.

GreenSquare has around 400 tenants involved in the demonstration project while the city council has around 1,600.

Ann Cornelius, executive director of GreenSquare, revealed that of the housing association tenants involved, 50% were adapting fine to direct payments and were coping with the change, however the remaining 50% it was having “issues” with.

She said: “Fewer people than we expected wandered off with the payments but we have taken five people to court. For one case we were granted a suspended possession order – we didn’t want to go for eviction – and the others were adjourned. It’s lower than we anticipated.”

She said “money judgements” were served on all of the tenants, which will affect their future credit ratings.

Cornelius said the tenants concerned had all been repeatedly urged to settle their arrears and that it was important the projects mimicked “real life” conditions under Universal Credit. She said it was as much a learning curve for landlords to see how the courts responded to requests for orders.

She said it was having to be “strict and almost draconian” with its arrears policy because of the amount of money at stake and its potential impact on the business.

GreenSquare, she said, was implementing a two-tier approach to debt management with a credit control team and a more “sophisticated” debt recovery team.

Back in September, Cornelius revealed that payment errors in the first two months of the project had seen direct debits coming out of accounts before the housing benefit was paid in by the local authority, leaving the tenants overdrawn. However, under Universal Credit it will be the DWP paying the benefit into claimants’ accounts.

“We think direct debits should be mandatory as far as it could be when people sign tenancies, she said.

GreenSquare and the city council set out with the intention to pay tenants their benefit by BACS and collect the payments through direct debits.

Cornelius said she was surprised by the number of tenants that had bank accounts – some 60% - but that some were in unauthorised overdrafts or had Post Office Card Accounts. She said the group actually wrote to banks informing them customers would be coming in to set up accounts.

“Some banks were more flexible than others in letting tenants set up accounts and were not as strict on identification documents being required,” she said. "Some of the customers rejected were really upset. They were devastated. So we had to do a lot of hand-holding. There will be issues with our residents who won’t be able to get a bank account.”

There was also discussion at the event around the management of tenants receiving benefits on different dates of the month and to ensure direct debits set up by housing associations were inline with those to ensure payment was prompt.

Under Universal Credit, it’s understood claimants will be allocated a pay date seven days after the end of their initial assessment period and subsequent pay dates will be on the same date of each following month (if they fall on a weekend or bank holiday, they will be advanced to the nearest working day).

“People being paid on any day of the month – that’s going to be difficult to manage,” said Paul Wilding, benefits manager at Oxford City Council.

Cornelius said the project had now reached its fifth payment and that September was an “interesting month” as children went back to school. “Some just paid three weeks instead of four as their children were going back to school and needed things for the new term.”

She said the demonstration project was testing an eight-week arrears trigger to switch payments back to the landlord. “So far, across both projects, we’ve had around 120 who have gone from having direct payment to themselves back to the landlord.”

She also warned that the move to direct payments would come at a cost as extra resources had to be invested in debt recovery operations and that this cost could affect its ability to build new homes and provide other services.