Cancellation Charges

Grandyant

I have switched suppliers owing to being overcharged by British Gas and from my credit they have deducted £100.00 as a 'Cancellation Charge' Has anyone else been charged this amount? How do they work them out? How can I get that back from them?
I have tried to ring them but twice got cut off whilst being transfered so they don't obviously want to know!! Where do I go from here?

Miss_Moppet

Grandyant, in August, I started a thread specifically asking if cancellation charges of the sort mentioned in your post are legal. Personally, I feel that a cancellation charge as high as a £100 could hardly be classed as fair and if it’s unfair then it may not be legally valid.

In your shoes, I’d write to British Gas by recorded delivery explaining that you’ve been cut off twice on the phone. Ask for a full written explanation as to why the £100 is being charged and also ask for a copy of their terms and conditions containing any relevant provisions and how it’s calculated, and of course how it’s justified.

Once you’ve had a reply you should then be in a better position to get further advice off this thread, the CAB or similar organizations, perhaps Consumer Focus or Consumer Direct.

Premier_2

Miss_Moppet wrote: »

...Ask for a full written explanation as to why the £100 is being charged and also ask for a copy of their terms and conditions containing any relevant provisions and how it’s calculated, and of course how it’s justified.....

Why should they be obliged to justify it? They don't justify their unit charges. It's a competitive market and consumers are free to shop around.

When a consumer accepts goods or services from a supplier, they also agree to the costs as per the terms of that contract.

Would you go into Tesco and expect them to justify why they charge 64p for a 415g tin of Heinz Baked Beans?

gemstars

I would if they charged £100 for a can of baked beans

Cardew

Miss_Moppet wrote: »

Grandyant, in August, I started a thread specifically asking if cancellation charges of the sort mentioned in your post are legal. Personally, I feel that a cancellation charge as high as a £100 could hardly be classed as fair and if it’s unfair then it may not be legally valid.

Presumably you are drawing a parallel between gas/electricity cancellation charges and the dispute about excessive Bank charges?

There are several reasons I can think of why the charge is justified.

1. The administrative costs of setting up accounts for gas and electricity.

2. That all Utility firms buy their energy on the futures market and in part base their forecasts on contracts with customers who have committed to stay with the company.

3. To attract customers most utility companies pay commission to various organisations. Many customers have become 'Tarts' switching from utility company to utility company in rapid succession to maximise cashback. This penalty clause cancels that incentive.

4. Most Utility companies have a standard tariff with no penalties for leaving; however these are usually the most expensive tariffs. If you elect for a cheaper tariff, albeit with penalties for leaving early, then surely you should accept the conditions.

Lastly it really isn't necessary for any company to have to explain and justify charges to customers, when those charges are included in their T&Cs. You don't have to join that company.

In the case of Utility companies, if you feel that the practice/charges are unreasonable, then surely the Regulator(ofgem) is the organisation to deal with the complaint.

factoryworker

gemstars wrote: »

I would if they charged £100 for a can of baked beans

you wouldn't; you'd either go without or choose a cheaper version. If you choose the cheaper version you would accept there must be some kind of trade off; less beans/poorer quality beans/more sauce/more salt etc. or a promotion (half price when you buy bacon.etc.)

Surely if you change supplier because your 'overcharged' (guess realy means not on cheapest tarif) for a cheaper one, you ask yourself how it can be cheaper; by DD against receipt of bill, credit meter against prepayment, online tarif, mimimum period/cancellation charges etc; if you are shrewd enough to notice your unit prices are lower, your shrewd enough to notice the reasons why - in this case a cancellation fee.

If your not shrewd enough to notice the unit prices AND other details, you shouldn't be switching; better to ring your supplier and ask "Am i on the best/cheapest tarif for my needs/usage?". You'll be surprised at their answer.

to answer Grnadyant, no chance of cancelling the cancellation charge; the only small chance of getting round this is to ask them to revert to standard tarif from start, and for any cashback to be repaid (by you); you will most likely find yourself worse off, and BG are under no obligation to do so

Miss_Moppet

Cardew, yes I’m drawing a parallel between gas/electricity cancellation charges and the dispute about excessive Bank charges. After all if the legal principle holds good on that surely it holds good generally.

As for the remarks you’ve made, I’ll answer them in the same numbered order that you put them in.

1. If this was genuine then how come these exit fees were never charged before?

2. You can’t be serious.

3. We’ve got to the heart of the problem, good. So how high would the penalty have to be before you cried foul? What if the exit fee was £1,000 instead would you be happy then?

4. As you well know there’s already very cheap gas and electricity tariffs that were created before this trend of exit fees so exit fees can’t be justified on grounds of cheapness.

My fear is that eventually all of the supply companies will funnel customers into a system of high exit fees that’ll stifle the customers’ ability to switch when there’s an unacceptable price hike.

As for your mentioning Ofgem, you’re right but can you really truthfully and honestly put your hand on your heart and say that you’ve any faith in Ofgem to protect the consumer bearing in mind its miserable track record?

As for my reply to Grandyant, why shouldn’t he have a chance at getting the charge dropped, it’s worth a go and unless you try, you’ll never know.

factoryworker

Miss_Moppet wrote: »

Cardew,I’ll answer them in the same numbered order that you put them in. .

to but in.....

1. If this was genuine then how come these exit fees were never charged before?

Exit fees have long been charged, albeit that they are often waived (for LOYAL/vulnerable/wrongly switched/errors). They seem more prevalant now because there are more online a/c's and cashback sites are more prevalant, and there are more 'tarts'

2. You can’t be serious.

Why not; thisis no different to Tesco's deciding fine to buy 2000 cans of baked beans coz they get a bigger discount and have a long shelf life (i.e little risk of loss), and chooing only 1 kilo of fresh octupuss (foregoing discounts for large order) as short shelf life and high risk of loss if not sold (and the beans will have a margin of 0.005% and the octupuss 200%- the margin reflects the risk); this is managing the risk - why should energy compnies be any different? When your lights flicker in winter - its hapened because someone got this calculation wrong, thankfully rarely; if they didn't do thid they would flivker/go off a lot more

3. We’ve got to the heart of the problem, good. So how high would the penalty have to be before you cried foul? What if the exit fee was £1,000 instead would you be happy then?

I wouldn't cry foul at ANY penalty; you just do the sums - how long will it take for the savings to cover the exit fee, and depending on your risk profile you accept/decline/look elsewhere (i would cry foul if there were exit fees on standard tarifs). Why are energy companies ripping people of when every other utility has such (Talk Talk minimum 18 mths, BT minimum 18 months)?

4. As you well know there’s already very cheap gas and electricity tariffs that were created before this trend of exit fees so exit fees can’t be justified on grounds of cheapness.

There have always been cheaper tarifs available, but not quite as many as today, and not at such a discount; energy companies are merely being more active in pursuing (cancellation) rather than waiving, because consumers are more active in changing; it takes the average energy company 1-2 years to recoup acquisition and setup costs. And if there have always been cheaper tarifs without the trend of exit fees why don't customers choose themm instead?

My fear is that eventually all of the supply companies will funnel customers into a system of high exit fees that’ll stifle the customers’ ability to switch when there’s an unacceptable price hike.

Consumer choice will prevent this

As for your mentioning Ofgem, you’re right but can you really truthfully and honestly put your hand on your heart and say that you’ve any faith in Ofgem to protect the consumer bearing in mind its miserable track record?

No - ill agree wholeheartedly on this one!

Premier_2

Miss_Moppet wrote: »

Cardew, yes I’m drawing a parallel between gas/electricity cancellation charges and the dispute about excessive Bank charges. After all if the legal principle holds good on that surely it holds good generally. ....

What legal principle?

Didn't you hear? The banks won the recent case in the Supreme Court.

Cardew

Miss Moppet,

Without going through item by item a couple of general thoughts.

Firstly market conditions have changed. Penalty clauses have been in place some years now, I have been on my present tariff for over 4 years and that has exit penalties.

We are encouraged to switch/switch/switch.

There is a huge growth industry making enormous profits in persuading us to change supplier. 4 years ago Uswitch were sold for over £200 million and make many £millions profit.

According to evidence given to the Parliamentary all party committee on energy, a very large percentage of people move to a more expensive tariff.

Those profits are paid for by the Utility companies(and of course eventually by customers). Utility companies have to employ huge numbers of staff in their accounts departments to cope with the openining and closing of accounts; again a large overhead.

There is a well established principle in all manner of fields where there is a penalty for leaving early.

1. I tie up my savings in a long term fixed bank account and get, say, 5%. If I leave early I lose, say 3 months interest.

The principle being that you elect for an account to receive a benefit, and accept the penalty for breaking an agreement.

Now as I can only afford £1,000 in the account, I lose £12.50 interest. You being rich and invest £500,000 will lose £6,250; same amount of work for the bank to close the account.

2. Cancel an insurance policy(life, motor, appliance etc) and you pay a penalty in that you don't get a full rebate of the premium you paid.

3. In fact most agreements you enter into, have a penalty if you break that agreement.

However I do take your point about exit penalties being, say £1000.

If you sign for a fixed or capped price tariff, then I think the companies can charge whatever exit penalties they wish.

There was a £75 penalty for the fixed price tariff I signed in 2005. I took the gamble and would have been prepared to pay the £75 had I gambled incorrectly. Had it been, say, £300 I probably would not have taken the gamble.

I believe the OP must have been on the BG fixed to 2011 as I think that is the only tariff with a £100 penalty(£50 each fuel). It turned out to be a bad bet and lost the £100. Had, like my case, that fixed tariff turned out to be a great deal we wouldn't have this thread!

I do agree it is a worrying trend that variable price tariffs are now having penalty fees. However most of them are very modest(£20 to £30) a fuel and the gains for someone taking a cheaper tariff for a few weeks will be more than that £20 to £30 in most cases.

It would certainly be a case for the Regulator if the Utility Companies stifled competition by luring customers with very low rates on variable tariffs, increased the tariffs, then had huge punitive exit penaties.

That certainly hasn't been the case and it seems to me perfectly reasonable to charge £100 or so for costs incurred.

Cardew

Miss_Moppet wrote: »

Ask for a full written explanation as to why the £100 is being charged and also ask for a copy of their terms and conditions containing any relevant provisions and how it’s calculated, and of course how it’s justified.

Further to my post above. I suspect that the OP is on BG fixed price 2011 contract. The conditions state:

Fixed Price 2011 customers will have their prices fixed at the standard August 2008 British Gas rates until 30th September 2011. There is a £70 gas cancellation penalty and £30 electricity cancellation penalty if you leave this tariff before the contract end date of 30/09/11.

If that is the tariff, BG agreed to hold the tariff at the same rate for 3 years(their side of the agreement) and the OP agreed to pay £100 if he didn't stay the full term(their side of the agreement)