Ofgem demands energy firms take ‘immediate’ action over direct debits

Energy regulator Ofgem has told energy firms to take ‘immediate and urgent action’ after a review found various problems in how they charge customers direct debits. 

Out of a total of 17 large suppliers, five were found to have ‘moderate or severe’ weaknesses – including Ecotricity, Good Energy, Green Energy UK and Utilita Energy.

Ofgem added that more than seven million energy consumers on a standard variable tariff (SVT) saw an increase in their direct debit between February and April 2022. 

It said that direct debit levels for customers on an SVT increased by 62 per cent on average over this period – most of which reflected the increased cost of gas.

Some 8 per cent of SVT customers saw a rise of more than 100 per cent – and Ofgem said it is ‘concerned by this and wants to ensure there is good reason for it’.

Weaknesses ranged from inadequate processes and weak governance and controls, to ‘an overall lack of a structured approach to setting customer direct debits’.

Ofgem said it was concerned that in some cases these problems could lead to customer direct debits being set incorrectly, or not being evaluated for a long time.

This can cause the build-up of either unnecessarily large credit balances or debt, depending on whether the customer is under or overpaying.

Ofgem said it was starting compliance engagement with the five identified suppliers to drive ‘rapid and robust improvements to processes and reassess customer direct debits where necessary’.

The regulator added that if these suppliers did not take action fast enough, it would consider enforcement action.

TruEnergy and UK Energy Incubator Hub (UKEIH) also had severe weakness, it said. In both cases the suppliers did not have a consistent and structured approach to setting customer direct debits.

Ofgem said: ‘To this end, we are considering whether enforcement action is warranted. 

‘Since the findings were made, UKEIH have ceased to trade and so we will not pursue any further action against them.’

The regulator said affected suppliers will now have to submit action plans within two weeks to set out how they will take the required actions, which the regulator will scrutinise.

Ofgem will also now require all suppliers that increased customers’ direct debits by over 100 per cent – impacting more than 500,000 households – to review them.

The regulator said it expects suppliers to adjust any miscalculations, including making repayments if needed, and consider whether a goodwill payment is needed. 

It also found evidence that some suppliers’ processes are ‘not as robust as they could be, and that this could lead to inconsistent, incorrect or poor treatment’.

And Ofgem warned of a ‘lack of formally documented policies and processes within some suppliers, which risks inconsistent and poor consumer outcomes’.

Ofgem chief executive Jonathan Brearley said today: ‘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.’

Mr Brearley continued: ‘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.’