Energy watchdog urges energy firms to fix direct debit problems

Energy regulator Ofgem has told a number of energy suppliers to take immediate and urgent action after a review found a range of weaknesses or failings in the way they charge customers direct debits.

Out of a total of 17 large suppliers in the market, the majority were found to only have minor issues, but five were found to have ‘moderate or severe’ weaknesses with Ofgem demanding immediate action.

The regulator says that is an initial snapshot of findings and suppliers affected will now have to submit action plans within two weeks to set out how they will take the required actions, which will scrutinise for effectiveness and comprehensiveness.

The regulator says it has not found evidence of unjustifiably high direct debits, as an additional reassurance for consumers, the regulator will require all suppliers that increased their customers’ direct debits by more than 100% (impacting over 500,000 customers) to review them.

Where appropriate, Ofgem also expects suppliers to adjust any miscalculations, including making repayments if needed, and consider whether a goodwill payment is warranted.

The review of domestic energy suppliers found that:

• Over 7 million energy consumers on a Standard Variable Tariff (SVT) saw an increase in their direct debit between February and April 2022
• On average, direct debit levels for customers on an SVT increased by 62% in this period. Most of this reflects the increased cost of gas
• 8% of SVT customers seeing an increase (around 500,000 households) experienced an increase of more than 100% and Ofgem is concerned by this and wants to ensure there is good reason for it (e.g., coming off an SVT, increase in energy use etc)
• Evidence that some suppliers’ processes are not as robust as they could be, and that this could lead to inconsistent, incorrect or poor treatment for customers
• A lack of formally documented policies and processes within some suppliers, which risks inconsistent and poor consumer outcomes.

The regulator says that it recognises that increases experienced by consumers will differ depending on a range of factors and that some of these, such as recent tariff changes, high debit balances or recent meter reads, can drive large adjustments to customer direct debits. But it is for suppliers to ensure that direct debits are set correctly based on all relevant information available and that they clearly communicate any changes in a way that helps consumers understand their payments.

Jonathan Brearley, Ofgem CEO, said “We know how hard it is for energy customers at the moment so it’s crucial that the amount they pay each month in direct debits is right so they can manage their money. Suppliers must do all they can, especially during the current gas crisis, to support customers and to recognise the significant worry and concern increased direct debits can cause.”

“We know there is some excellent service out there, but we want to make sure that it’s consistent and standard across the board. It’s clear from today’s findings on direct debits that there are areas of the market where customers are simply not getting the service they need and rightly expect in these very difficult times.”

“Today’s findings show that with the urgent changes we are now expecting, the current system will be much fairer for consumers. Bringing down the price of gas is not in Ofgem’s control; however, we will do all we can to have a fair system and ensure suppliers look after their customers.”