Energy suppliers urged to fix soaring direct debits for customers

Following a review, Ofgem has urged energy providers to take action and improve their direct debiting processes.

While most of the providers were found to have some failings, the regulator named five which were seen to have ‘moderate to severe weaknesses’. These include ‘inadequately documented or embedded processes, weak governance and controls, to an overall lack of a structured approach to setting customer direct debits’. Providers who have fallen short of Ofgem’s standards were told that they needed to do the following within the next two weeks.

• Review accounts of customers whose bills have increased by 100% or more

• Reimburse customers who have been overcharged and offering goodwill payments were appropriate

• Examine any process issues which lead to incorrect payments

• Submit a plan of how to address and fix any problems found during the review

The regulator has warned that failure to handle these problems will result in punitive measures. These could include fines or an order banning them from taking on any new customers.

“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,” Ofgem’s chief executive, Jonathan Brearley, said.

“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.”

The energy market has been in turmoil for the last three years. Price started to rise towards the end of 2019, as heightened demand in Asian countries emerging from lockdown was met with muted output in Europe. In the UK, the price cap - which limits how much providers can charge - meant that many energy companies were operating at significant losses. This meant that in 2021 alone, nearly 30 providers went out of business. 

However, the price cap was hiked significantly in April to accommodate the market conditions. This resulted in a 54% increase, bringing average household energy bills to nearly £2,000 a year. While there had been some hope that winter would bring respite, a recent report from Cornwall Insights warned that bills could exceed £3000 when the price cap is next adjusted in October.