Utility debt and unaffordable direct debits
This article looks at Direct Debit increases by suppliers and the action that you could take to help clients.
Energy debt has been the top issue that advisers have been helping clients with since January 2021. Earlier this year we published three energy articles which cover some of the rules suppliers need to follow:
- read ‘Liability, protections for vulnerable client, negotiating an arrears repayment and complaints’ on Adviser online
- read ‘ What happens if an energy supplier goes out of business’ on Adviser online
- read ‘Help for clients who are struggling to pay’ on Adviser online
The supplier has increased my direct debit payment
The increase to the energy cap means this is inevitable. However, some suppliers increased direct debits by more than they should, according to the Guardian.
Your client will get notice of any increase. The first thing to do is ask for a breakdown of what the new direct debit includes.
If the new Direct Debit covers accurate usage only then it’s not something that can be challenged. It’s expensive because of the cap increase and not because a supplier is doing anything wrong.
If it’s higher than accurate readings suggest, or because debt is being recovered at an unaffordable rate, advisers can challenge this by:
- providing up to date readings to ensure actual usage is accurate
- where arrears are included, complete a standard financial statement (SFS) showing what debt repayments are affordable, even if this is a token £1 per month
This also applies to situations where a client had a debt repayment plan in place that is no longer affordable.
If the supplier doesn’t lower the Direct Debit, follow this up with a complaint and subsequently refer to Ombudsman Services which we cover later in this article. The regulatory rules and guidance, known as standard licence conditions (SLCs), to use in your negotiations could include:
Standard licence condition (SLC) relating to accurate direct debits
SLC 27 (paras 15–16) requires a supplier to set direct debits
‘ …based on the best and most current information available…’
The supplier is only required to take ‘reasonable steps’ to gather this information, so make sure meter readings are given. Suppliers can also use their own contractual terms and conditions to get around this, if the T&Cs allow them to calculate differently.
On 26 August 2022 Ofgem announced it will strengthen 27.15 to remove this contractual escape route. The changes, which will take effect from 21 October 2022, require Direct Debits to be set using the best and most current information, removing the grey area of suppliers only needing to take ‘reasonable steps’ to find that information. Before 21 October, you can use this improvement in your complaint as it represents best practice and suppliers will have to comply with in future.
Read Ofgem’s decision on SLC 27.15 on their website
If the supplier lowers the direct debit, use SLC 27.16 to ask for any credit to be refunded in a ‘timely manner.’ If a supplier thinks it is reasonable to hold on to the credit they must explain why, which may give rise to a separate complaint. ‘Timely’ is not defined, although for final bills Ofgem expects refunds of credit to be made within 10 working days which is a useful indication.
A client might want to build up a credit balance to help through the more expensive winter months. Suppliers might argue that reducing a Direct Debit will leave clients at risk of accruing debt in winter. It is a balancing act whether a client pursues any refund. If they are unable to pay their priority bills and buy enough food for their family, it may be justifiable in the short-term, even if the risk of future debt is unavoidable.
Standard licence condition on payment methods and ‘ability to pay’
Where the supplier refuses to reduce an unreasonable Direct Debit, it can look as though a prepayment meter is the only option. At the moment, suppliers cannot request new deductions or increase existing deductions for ongoing charges from benefits. Remember a client can still request this if it helps.
SLC 27.5 and 27.6(a)(ii) require suppliers to offer payment methods to those struggling to pay, including:
‘…regular instalments calculated in accordance with paragraph 27.8 and paid through a means other than a Prepayment Meter…’
Prepayment can be suggested, but 27.5 requires all available methods to be offered. By refusing to lower a Direct Debit, the available choice in 27.5 is being removed unfairly. Payment cards could also be offered under this provision, as could standing orders. It doesn’t have to lead to a pre-payment meter.
In addition SLC 27.8 (ability to pay) must be considered alongside the payment method.
Where a supplier refuses to lower a Direct Debit to cover accurate usage, and/or manageable recovery of debt, 27.8 requires them to:
‘…take all reasonable steps to ascertain the Domestic Customer’s ability to pay, and must take this into account when calculating instalments, giving due consideration to:
a) Information provided by third parties…’
This covers a Standard Financial Statement with an offer, or a complaint from a debt adviser. Once that information is provided the supplier must take it into account.
27.8A(a)(i) requires suppliers to treat issues on a case by case basis. Even if they run a policy of overcharging generally, they should break from this when considering individual complaints.
27.8A(d) says that suppliers should be setting instalments based on ability to pay by:
‘i) Ensuring all information is obtained and taken into account…
ii) Only setting default amounts where there is insufficient information to ascertain a customer’s ability to pay…In any event the level of any default repayment rate should be reasonable…’
Suppliers that refuse to negotiate, set arbitrary instalments or fail to take into account information they are given about a client’s circumstances, are breaching SLCs.
Standard Licence Condition 0 — Treating customers fairly
This SLC is an overarching expectation from Ofgem of how suppliers or their representatives, which includes a debt collection agency, treat customers in interactions. It can be used to support a complaint on affordability.
The important parts of SLC 0 relevant to affordability are:
0.1) …ensure that each domestic customer, including each domestic customer in a vulnerable situation, is treated fairly.
0.3)(a) (suppliers must)…behave and carry out any actions in a fair, honest, transparent and appropriate professional manner.
0.3)(d) in relation to a domestic customer in a vulnerable situation…(ii) do so in a manner which takes into account any vulnerable situation
Vulnerable customer is defined broadly as someone who is:
Significantly less able to protect or represent their interests or
Significantly more likely than a typical customer to suffer detriment, or that detriment is likely to be more substantial
Advisers will be aware generally of who might be considered vulnerable, such as those with mental health conditions, but you can read more detail on Ofgem’s site.
Read Ofgem’s guidance on vulnerable situations on their website
Note that charges are out of scope for SLC 0. A complaint about the level of a Direct Debit is not about the level of charges such as unit rates and standing charges. It is about the recovery method of those charges.
If the supplier subscribes to the Standard Financial Statement
Although not enforceable, the SFS User Guide states that subscribing to the SFS represents:
‘A commitment from creditors not to challenge statements where expenditure falls within spending guidelines and to accept advisers’ reasonable explanations, unless they have reasonable cause to believe that the customer’s income and expenditure statement may be incomplete or inaccurate.’
‘A commitment to a partnership approach that improves transparency between advisers, clients and creditors.’
A supplier who subscribes to the SFS will have an SFS licence number that advisers can search on the SFS website.
Search using an SFS licence number on the SFS website.
The supplier doesn’t change their mind
If the supplier refuses to reduce the client’s direct debits Citizens Advice’s Consumer Service can help by making a referral to the Extra Help Unit (EHU). If you’re not an adviser in a local Citizens Advice you can still contact the Consumer Service.
Find contact details for EHU on Advisernet (local Citizens Advice only)
Find contact details for the Consumer helpline on the Citizens Advice website.
If you have already complained, refer the complaint to Ombudsman Services Energy. You can only refer to the Ombudsman when the earliest of the following occurs:
- You receive a ‘deadlock’ letter from the supplier or
- eight weeks have elapsed since the complaint was raised
The service is free of charge. You must escalate the complaint to the Ombudsman within 12 months of the deadlock letter.
Find details about Ombudsman Service Energy on their website
Graham O’Malley is a Senior Debt Expert on the Expert Advice team at Citizens Advice.
The information in this article is correct as of the date of publication. This article was updated on 1 September 2022 to reflect changes to SLC 27.15.
Unfortunately, we are unable to respond to comments left on the medium site — please contact expertadvicesupport@citizensadvice.org.uk if you wish to give feedback on an article.
