Direct Debit Market Compliance Review: Progress Update
Decision
Publication date
Industry sector
Supply and Retail Market
In the summer of 2022, we shared our initial results of our first Market Compliance Review focusing on consumer Direct Debits. We quickly launched this review due to growing concern over sharp increases of consumer Direct Debits, after the level of the April 2022 energy price cap was announced. Our initial review found no evidence that energy suppliers were deliberately inflating Direct Debit levels, but we did identify a range of improvements that most suppliers could make to ensure better consumer outcomes.
After conducting an initial assessment, we opened formal compliance engagement with 12 suppliers and issued a Provisional Order to TruEnergy. We required that all 12 suppliers submit remedial action plans to address our concerns. We identified 56 concerns in total and to date 53 (95%) have been satisfactorily resolved. Through our intervention we have secured several supplier improvements in relation to policies, processes and controls, credit balance arrangements and training. Some specific examples include:
- Increased frequency of Direct Debit adequacy assessments to ensure consumers continue to pay the correct amount in line with energy usage.
- Introduction of new safeguard controls that identify and trigger an additional adequacy review where a Direct Debit amount is due to increase out with a set tolerance.
- Ensuring that surplus customer credit balances are either returned to consumers or factored into a lower Direct Debit amount.
- Improved refund timescales ensuring consumer credit balances are returned promptly when requested.
- The creation of formal Direct Debit and Credit Balance Refund policies where these did not previously exist.
- Improved customer communications on outbound communications and self-serve portals, to enhance customer engagement and understanding.
To date we have closed compliance engagement with Bulb, E.ON, Ecotricity, Green Energy UK, Octopus, Shell, TruEnergy, Utilita and Utility Warehouse. We continue to formally engage with Good Energy, Outfox the Market and Ovo to secure improvements or adequate reassurance of compliance.
As part of our review, we requested that all suppliers, including British Gas, EDF, ScottishPower and SO Energy, where no significant issues were identified, perform a review of consumer Direct Debit payments that increased by 100% or more between February and April 2022. The objective was to assess whether these payment increases were justified and communicated clearly. We have found no evidence that any supplier has intentionally increased any Direct Debit payment above an adequate level. Almost 1million Direct Debits fell into the scope of the review exercise and to date issues have been confirmed with approximately 4,000. A total of £117,580 compensation has subsequently been awarded to affected consumers. We continue to engage with Good Energy, Outfox the Market, Ovo and SO Energy. It is possible that further compensation payments may follow.
We recognise that many consumers have experienced significant increases in their Direct Debit payments over the past 12 months and we have outlined some of the potential reasons behind this below. Regardless, consumers can of course contact their supplier to discuss their Direct Debit payment if they believe it is incorrect. Suppliers are also obligated to provide support to anyone who may be struggling to pay for their energy. More help and advice for anyone who may find themselves in payment difficulty is available here.
Rationale behind increasing Direct Debit costs:
Wholesale energy costs have increased dramatically over the last 12 months, predominantly driven by the ongoing conflict in Ukraine reducing the global availability of wholesale gas. These increased costs are ultimately reflected in the level of the energy price cap, however our review has identified several key reasons why Direct Debit levels may be increasing by more than anticipated:
- Some consumers will have recently come to the end of a significantly cheaper fixed term tariff and rolled on to a standard variable tariff. The cost difference between the two is likely to be substantial and this will ultimately be reflected in the level of the new Direct Debit.
- The balance of each consumers energy account also plays a role in the level of any Direct Debit. Where a consumer is in a credit position, we expect suppliers to reduce the associated Direct Debit level with the intention of returning the account as close to a zero balance over the next 12 months. Similarly, where a consumer account is in a debit position, suppliers commonly add this amount on to the Direct Debit amount and smooth the cost over the next 12 months.
- In the absence of regular meter readings, suppliers will bill consumer accounts based on the best available estimate of energy usage. Where an account has been billed to estimates for some time, a meter reading will bring the account up to date, but it can differ from the estimate used. If a consumer has used more energy than estimated, it’s likely the account has accrued a debit balance which will be factored into an increased Direct Debit level.
- Direct Debits are forecasted over a 12-month period, but industry price cap levels now change on a quarterly basis. We expect suppliers to recognise this and to carry out regular adequacy reviews. This means that as the cost of energy falls, consumers should see this reflected in their Direct Debit level sooner. Alternatively, as the cost of energy increases, we anticipate that Direct Debit levels will also increase.