Ofgem demands action on ‘poor’ debt recovery experiences

Ofgem has ordered suppliers to improve the way they treat customers in arrears, following concerns that too many are receiving “poor experiences” during the debt recovery process.

The energy regulator’s director of retail made the comments in a letter to suppliers following the publication of the findings of its latest Market Compliance Review which outlined issues surrounding how they treat customers struggling to pay their bills.

In the letter Neil Lawrence outlines the regulator’s key expectations and where suppliers can adopt good practices to better support their customers.

Lawrence said that Ofgem’s main regulatory requirements are that consumers can easily contact their supplier and are treated fairly when they do so, that retailers identify those in vulnerable circumstances and provide additional support where appropriate, as well as ensuring Priority Services Register (PSR) data is up to date and shared with relevant parties.

Retailers must also make proactive contact with customers in payment difficulty using a “range of communication methods”, take into account their ability to pay and information from third parties such as charities.

Furthermore, prepayment meters (PPMs) must be “safe and reasonably practicable in every case” and suppliers must act quickly to change the meter to non-prepayment if necessary.

Debt recovery actions meanwhile must always be fair and proportionate and suppliers must not “escalate debt recovery actions too quickly and ensure third party representatives, such as debt collection agencies, abide by the same regulatory obligations and treat customers fairly”.

Following the latest Market Compliance Review, Lawrence said there were some “very concerning results” and outlined a number of key areas the regulator believes suppliers must focus on.

Identification of financial vulnerability

Lawrence said Ofgem is concerned that financial vulnerability is not being identified “consistently or early enough in the customer journey”.

“Proactively identifying financial vulnerability by monitoring accounts for indicators of financial stress before a customer reaches crisis point can increase the likelihood of a positive customer outcome,” he added.

He further highlighted how more than half of consumers have at least one characteristic of vulnerability and at least 10 million consumers are in a position of low financial resilience.

Ofgem therefore wants to see more retailers introduce or improve existing tools and processes so customers struggling with their bills can receive appropriate help. This, he added, could include innovations such as the financial vulnerability needs codes many suppliers introduced during the pandemic.

Ability to Pay

Ofgem is continuing to observe poor customer experiences where suppliers are not always taking ability to pay into account, with some setting minimum repayment rates.

“Customers struggling to pay their bills should not be pressured into paying what they are unable to afford,” said Lawrence. “We expect suppliers to set repayment rates that are affordable based on a customer’s ability to pay. If a customer is unable to pay their arrears, staff should be empowered to provide a range of forbearance options that focus on sustainable debt solutions, not short-term debt recovery.”

Additionally, retailers must give due consideration to all available information when assessing ability to pay from third parties.

Self-disconnection and self-rationing

Highlighting figures from Citizens Advice, which reports more consumers being unable to top up their PPM this year than the last three years combined, Lawrence said the regulator wanted to remind suppliers of the rules introduced in winter 2020 around self-disconnection, self-rationing, and supporting customers struggling with their bills.

Specifically, suppliers must take all reasonable steps to “identify on an ongoing and continuous basis whether a customer is self-disconnecting”.

“We expect suppliers to offer additional support credit to customers who have self-disconnected or self-rationed where it is in the customers’ best interest and/or where the customer is in a vulnerable situation,” he added.

Prepayment meters – safe and reasonably practicable

When installing or remotely switching a PPM, this must be done with the appropriate safe and reasonably practicable assessment, including identifying any vulnerability.

Where it has been assessed that a PPM is not safe or reasonably practicable, for example in cases where consumers need continuous energy supply, suppliers should take immediate steps to change the meter type and remove the risk of consumer harm.

Furthermore, suppliers should always have “ability to pay conversations” with their customers before attempting to force-fit a prepayment meter to recover debt. Also, force-fitting a meter under warrant must always be a last resort.

Debt recovery actions

Lawrence highlighted concerns that too many consumers are receiving “poor experiences” when suppliers are recovering debt.

Debt recovery actions must always be fair and proportionate and aimed at achieving good consumer outcomes.

“Debt communications should strike the right tone, are understanding of the circumstances, and provide clear debt solutions and support,” Lawrence said.

He further highlighted consumer research which has been used to inform the regulator’s decision making process.

The qualitative research, undertaken with Ofgem’s Consumer First Panel in November 2021, indicated that consumers values are being listened to, as well as being shown empathy. This, he added, can increase the likelihood of engagement and a positive outcome.

Lawrence closed by saying Ofgem expected suppliers to “do their utmost to support their customers” over the winter months.

“As a minimum that includes full compliance against their regulatory obligations and the expectations we have set out in this letter. We will take further action, including compliance and enforcement, if we see suppliers falling short of these,” he said.

Another Market Compliance Review, which looks into the systems and processes suppliers have in place to support consumers in vulnerable situations, has also been conducted and Ofgem said it will set out its findings in due course.

Energy Price Guarantee regulatory expectations

Elsewhere, Lawrence has written a second letter in which Ofgem assures it will work with suppliers in addressing any issues that may arise from implementing the government’s recently announced Energy Price Guarantee.

While the regulator is supportive of the intervention being introduced at pace, Ofgem recognises there may be situations where suppliers may not have “full and timely information about the EPG”.

This, Lawrence said, may “temporarily affect their ability to discharge some licence obligations to the highest standards expected of an essential service provider”.

He added: “To that end, Ofgem’s approach to compliance and enforcement matters in relation to the EPG’s interaction with suppliers’ licence obligations will continue to be both pragmatic and proportionate.”

Lawrence said that in the event of “genuine conflict” between particular EPG obligations and any supply licence conditions such that compliance with both is not possible, Ofgem will consider whether to introduce flexibilities such as derogation or exception mechanisms.

“Once the scheme is operational we expect suppliers to revert to business-as-usual practices by the end of October and comply fully with these licence obligations; we will keep this arrangement under review,” he said.

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