Ofgem to investigate whether UK energy companies are increasing customers’ direct debits “by more than necessary” as prices rise and the cost of living crisis bites
- Ofgem CEO Jonathan Brierley warned energy companies about prices
- He said fines would be imposed on companies that increase direct debit levels too high
- He is also concerned about the deterioration of customer service in the sector
- He said some companies use risky business models that increase the risk of failure
By Darren Boyle for MailOnline
Posted: 14:49, 15 April 2022 | Updated: 14:58, 15 April 2022
Energy regulator Ofgem has warned gas and electricity suppliers that they could face fines and likely lose their licenses if they try to rob consumers during the cost-of-living crisis.
The regulator said it was reviewing the amount companies are increasing direct debits after an “unprecedented” increase of 54 percent in the energy price cap on April 1st.
About 4.3 million customers were also relocated to alternative companies when their gas or electricity supplier collapsed as a result of market instability.
In a blog post, Ofgem CEO Jonathan Brierley said: “We also see alarming signs that some companies are responding to these changes by allowing customer service levels to deteriorate.”
Ofgem CEO Jonathan Brierley, pictured, wrote a blog warning energy companies of deteriorating customer service during the cost of living crisis
The energy price cap jumped 54 percent on April 1st, with further increases expected later this year.
He continued: “For example, concerns have been expressed that some providers may have increased direct debit payments by more than necessary or directed customers to tariffs that may not be in their best interests. We have also seen disturbing stories of how some vulnerable clients are treated when they get into trouble.
He warned energy companies “now more than ever we need suppliers to adhere to the requirements of their licenses on how to work with customers in financial difficulties.”
Energy companies will now face stricter oversight of how they deal with direct customer debits and “ensure that companies adhere to higher standards for the overall performance of customer service and the protection of vulnerable customers”.
According to Ofgem: “When they fail to do so, we will not hesitate to take swift action to enforce compliance, including imposing significant fines.”
The regulator said it would “fight the misuse of customer credit balances and renewable payments”.
Some gas companies that collapsed used money paid to them by customers to support their businesses instead of paying for energy or developing renewable energy.
Ofgem has warned energy companies that they will face measures if they fail to properly deal with vulnerable customers such as retirees or impose too high direct debit payments. Companies are also warned not to use customers’ money as a form of interest-free financing
Mr Brierley warned: “Clients’ credit balances should only be used to reconcile accounts and not as a source of risk-free capital. That is why we are considering options to limit credit balances and payments for renewable energy sources in such a way as to protect them if a supplier fails. ”
In addition to energy bills, consumers are facing increased costs, with the Bank of England warning that the contraction could lead to defaults on loans and credit cards.
A recent study of the Bank of England’s credit conditions showed that creditors predict that mortgages, unsecured loans and business loans will jump in the three months to May.
However, the companies said they expect losses on these loans to remain stable over the period.
This comes after banking companies and credit providers said they saw a reduction in defaults on both secured and unsecured loans in the last quarter to February.
Lenders also told the central bank that they plan to curb mortgage lending by the largest amount since the pandemic began.
Rising interest rates have led creditors to cut their mortgage offerings and tighten some eligibility criteria.
Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, said: “With rising inflation and staggering prices rising for many of the most important things, this has forced more of us to take out loans to make ends meet.
“Credit card loans grew faster than any other month in February – the last month for which we have data.
“But while this may seem like a short-term solution, you are creating problems for the future because you are adding interest and payments to the ever-increasing mountain of monthly expenses, making it increasingly difficult to stay on top of our finances every month.
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