Ofgem seeks improvements from 12 suppliers in relation to customer direct debit setting


Publication date

Industry sector

Supply and Retail Market

In April, Ofgem launched a Market Compliance Review to assess how suppliers set and review customer direct debit levels. This was in response to growing concerns regarding sharp increases in direct debit levels across the domestic energy market. Our review did not find evidence that direct debits were being widely inflated, but we did identify weaknesses in some suppliers’ processes that could result in suppliers setting some direct debits incorrectly. It is very important to us that at this time, consumers can trust that their direct debit is an accurate reflection of their consumption, and are given enough information to understand why they are paying the amount they are. 

We found that on average direct debit levels for Standard Variable Tariff (SVT) customers increased by 62% in the two months ahead of the Price Cap increase on 1 April. We also found that 8% of SVT customers experienced an increase of more than 100%. We recognise 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. Any increase can also differ significantly from average increases, based on individual consumption. Nonetheless, we expect suppliers to take all reasonable steps to ensure that direct debits are set correctly based on all relevant information available, and clearly explained to customers. This is particularly important for high increases given the impact on consumers, especially at this time. 

To drive improvements across the market, we are asking 12 suppliers to submit action plans to address weaknesses we identified. We are also asking all suppliers, as an additional reassurance, to review the direct debits of all customers on an SVT who had their direct debit increased by 100% or more between 1 February and 30 April. This is to ensure these customers are paying the right amount and have the right information to understand their payments. We have also asked some suppliers to look at other specific groups of customers. While our current evidence does not suggest that direct debits were set incorrectly for most consumers, any consumers with questions about their direct debit, or who are unsure they are paying the right amount, should contact their supplier.

Our assessment divided suppliers into three groups:

  1. No significant issues (four suppliers)
  2. Minor weaknesses (seven suppliers)
  3. Moderate to severe weaknesses (five suppliers)

Suppliers in the first group, with no significant issues found, are British Gas, EDF, ScottishPower and SO Energy. Our review found that these suppliers generally had robust processes in place, although we did make some minor recommendations for improvement. We are asking these suppliers to review customer direct debits to ensure they are correct as an additional reassurance for consumers.

The second group, with minor weaknesses identified, consisted of Bulb, E.ON, Octopus, Outfox the Market, Ovo, Shell and Utility Warehouse. For this group of suppliers, we identified some weaknesses or gaps in their processes that could lead to poor consumer outcomes. Examples include lack of documented policies or guidance for staff, potentially not taking account of all relevant factors when setting customer direct debits, or risks that some customers’ direct debits are not assessed when appropriate. We have started compliance engagement with these suppliers to secure improvements.

We identified moderate to severe weaknesses in relation to suppliers in the third group. This includes Ecotricity, Good Energy, Green Energy UK and Utilita, and covered a spectrum of weaknesses, ranging from inadequately documented or embedded processes, weak governance and controls, to an overall lack of a structured approach to setting customer direct debits. We are concerned that in some cases this could lead to customer direct debits being set incorrectly, or not being evaluated for a long time, which can cause the build-up of either unnecessarily large credit balances or debt, depending on whether the customer is under- or overpaying. We are starting compliance engagement with these suppliers to drive rapid and robust improvements to processes and reassess customer direct debits where necessary. If these suppliers don’t take action or provide assurances fast enough, we will consider Enforcement action.

Within this group we also identified two suppliers where we had severe concerns over the maturity of their processes: TruEnergy and UK Energy Incubator Hub (UKEIH). In each case we found the suppliers did not have a consistent and structured approach to setting customer direct debits. We believe this puts consumers at a serious risk of inconsistent or poor outcomes, and there is a clear need for rapid and significant improvement. To this end, we are considering whether enforcement action is warranted. Since the completion of our initial assessment, UKEIH has ceased trading and we will not pursue further action as a result.

If Ofgem does not see swift and sufficient improvement, as well as redress for consumers where necessary, we will not hesitate to initiate enforcement action against more suppliers, which can include financial penalties, enforcement orders and banning the acquisition of new customers. 

Key messages for suppliers

We expect suppliers to take appropriate steps to ensure they are setting consumer direct debits at the correct level. This includes improving and formally documenting all elements of governance, policies, processes and controls that support positive and consistent consumer outcomes

We also expect all suppliers to learn lessons from our market compliance review and proactively plan for the next price cap period which is due to come into effect on 1 October 2022, to ensure that any future changes to customer direct debits are appropriate and communicated clearly.