Customer debt is a big problem in many industries. Companies compete on their ability to manage customers' debt - the less a company spends chasing down or writing off debt, the more savings it can pass on and the better able it is to offer competitive deals to other customers.
Most other creditors can choose which customers they take on and when - energy companies can’t. Energy suppliers have a duty to offer terms to customers, including any new occupants who have moved into an address they already serve.
If a customer is in debt to their energy supplier for 28 days or more, a supplier can ‘object’ to them switching to a different provider until the debt has been paid off.
This ability to ask customers to pay outstanding charges before they switch is a unique but vital tool energy suppliers use to manage their debt risk, and protect the majority of customers from higher prices.
Ofgem is currently reviewing whether energy suppliers should continue to be able to do this, as it is worried customers in debt aren’t able to switch to the cheapest deals.
Energy UK believes removing energy suppliers’ ability to ask a customer to pay their debt before they switch would have a negative impact on the deals that are available to all customers, and may lead to more credit checks and security deposits in the long run. This would seem unfair on the vast majority of customers who pay for what they use. And those who are in debt (or who have been in the past) but are trying to find their way back into the black may find it more difficult to access the market or find an affordable deal, as their credit rating would become more of an issue.
At the same time, ten companies have actively taken steps with Ofgem to make it simpler and easier for prepayment customers who are in debt to switch supplier, by making changes to how they operate the Debt Assignment Protocol (DAP). The changes will enable the customer’s switch to automatically proceed, even if they are in £500 debt per fuel, by transferring the debt to the new supplier.
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