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Direct Debit Problems
DirectDebacle
Posts: 2,045 Forumite
As a result of various threads/posts regarding problems with Direct Debit payments required by suppliers I thought I would try to explain how I believe they should be managed by suppliers and customers. This is purely my opinion and is intended for those who do not have the management of utilities as their No.1. priority. It is a non- exhaustive description of some DD problems customers encounter.
I am referring to DD arrangements where the account is expected to be at zero after 12 consecutive monthly payments.
Most consumers are aware that the Direct Debit (DD) scheme was introduced for the benefit of both consumers and suppliers. The main benefit for consumers is to smooth or even out payments, usually over a year, thus avoiding large winter bills. The benefit to suppliers is often recognised by a DD discount given to consumers for choosing this method of payment.
In practice it is common for DD accounts to run for 12 months from the date they were taken out (the anniversary date) by which time, if all has gone according to plan the account should be at zero. As energy consumption can vary it is accepted that at the end of the DD term there may be a debit or credit balance on the account. This is either paid or carried forward to the next DD term if the customer remains with the same supplier. However the debit or credit balance should not normally be excessive.
It is also accepted that as the DD term progresses there will be occasions when the account is either in credit or debit.
As an example an account opened in April should have sufficient credit on it to cover the coming higher winter months usage.
If you take a split of 75% winter usage and 25% for the remainder of the year then on a £1200 annual energy bill the monthly DD would be £100.00.
Cost of energy from April to Sept incl. would be £300 and Oct – March £900.00.
DD payment for these periods would be £600 each so there would be a credit balance of £300 at the end of Sept to cover the winter usage of £900 which the DD would only pay £600 towards.
The above example is to illustrate why a healthy credit balance in the autumn is not necessarily a sign of the supplier claiming excessively high DD payments.
There have been some posts complaining of suppliers refusing to refund credit balances as the supplier anticipated the customer would have a large debit balance by the end of the DD term. (See Standard Licence Condition 27.16 below.)
In the case of a consumer commencing a contract on say 1st October then using the above example it would be expected that the account would be £300 in debit by the end of March. This would not be a reason for a supplier to increase the DD as it is set to pay £600.00 by the end of the term. This will pay the £300 debt and £300 usage to achieve a zero balance by the end of its 12 monthly payments.
The above is the theory but in practice it is not quite so simple. To get close to the ideal DD a certain amount of information needs to be known.
You need to know your annual consumption of gas and electricity in kWh. If you don’t know what they are ask your supplier. Your existing or previous DD payments are not a good basis for calculating consumption.
If you are a newcomer or have only a short history of consumption then make an estimate as accurately as possible. Work on an annual average of around 20500 kWh for gas and 3300 kWh for electricity per annum. This is for a typical (average) household with gch and hw, so adjust these figures to suit your own property and circumstances.
Your consumption is then multiplied by the cost per kWh of each fuel and any discounts you are entitled to are deducted. The remainder is divided by 12. This gives you the monthly DD payment for each fuel over a 12 month year.
Keep an eye on your usage and do not delay in notifying your supplier of any changes that can affect the assessment of the DD payment. Examples are a change in the amount of people living in the property, alterations to the heating system, insulation or extensions/loft conversions, all of which could cause consumption to be raised or lowered.
Suppliers are required by law to act responsibly in the management of DD and are required to assess DD payments based on the best information available to them. If they reassess your DD and change it, they are obliged to give you an explanation in clear, plain and intelligible language the basis upon which any change has been made.
Receiving a communication from a supplier which simply states that after reviewing your DD they are changing it to £x per month is simply not good enough. The change has to be supported with facts and figure so that you can check whether it is reasonable or not.
These communications from suppliers have to be checked very carefully. There have been many recent posts regarding npower who have been notifying customers of sharp increases in their DD after conducting a review of their account. One reason has been that they have altered the length of the term of the DD in order to achieve a zero balance in less than 12 months.
A poster who opened an account with npower in Oct/Nov would have anticipated that the zero balance would be achieved 12 months later. They received a review in Sept which stated that the DD was to be increased to achieve a zero balance by their annual review which had been re-set for the spring.
Therefore with any notice of alteration you receive from your supplier check that the date they expect your account to be at zero is still in line with your anniversary date.
Some of you will be on fixed price tariffs of a length more than a year. Changes to the DD should not be caused by price changes but may be affected by a change in usage.
Monitor your usage and arrange for the DD to be changed if necessary. Suppliers might not review these types of accounts as regularly as others.
For most customers simple proactive management (e.g. recording and submitting meter readings regularly) of their energy consumption should avoid the bulk of the problems that arise with DD.
However that will not screen out the cases where a DD assessment is simply wrong or otherwise mis-managed.
If you can show that the DD has been miscalculated and is therefore unreasonable, then request the supplier to calculate it correctly and change it. If they refuse make a formal complaint. If this is not resolved to your satisfaction, complain to either Consumer Focus, the Energy Ombudsman or both. If neither of them can obtain a satisfactory outcome for you then you still have the County Court (Small Claims) as a last resort.
What may help you in any DD dispute are the Standard Licence Conditions which suppliers are required to follow in respect of DD. Familiarise yourself with them before entering into a dispute.
This is a broad brush approach to DD and not intended to cover every single problem.
In the case of any dispute you will have to follow your suppliers procedure. I would strongly recommend that if you enter into a complaints procedure for any reason then any communication you have with your supplier is confirmed in writing and sent recorded delivery.
Make notes of to whom and when you spoke to someone and what was said.
Telephone calls are not always logged, emails are mysteriously not received and ordinary letters occasionally never arrive. Keep copies of everything and print out the electronic signature of receipt of recorded mail.
If it comes to your attention that other customers are suffering a similar problem to you then inform Consumer Focus, even if your dispute is resolved to your satisfaction. Consumer Focus collates information and they may see a pattern of widespread wrongdoing by a supplier(s) and are able to bring this to the attention of Ofgem.
Condition 27. Payments, Security Deposits and Disconnections
Add to existing Standard Licence Condition 27 ‘Payment methods under Domestic Supply Contract’:
27.13 Paragraphs 14, 15 and 16 apply where a Domestic Customer pays the Charges for the Supply of Electricity which are payable under its Domestic Supply Contract by way of regular direct debit payments of a fixed amount (which amount may be varied from time to time in accordance with the relevant Domestic Supply Contract).
27.14 The licensee must provide to each such Domestic Customer an explanation in clear, plain and intelligible language of the basis upon which a fixed amount (and any variation of that fixed amount) has been determined.
27.15 Save where a clear and express Principal Term of the relevant Domestic Supply Contract provides otherwise, the licensee must take all reasonable steps to ensure that the fixed amount of the regular direct debit payment is based on the best and most current information available (or which reasonably ought to be available) to the licensee, including information as to the quantity of electricity which the licensee reasonably estimates has been or will be supplied under the relevant Domestic Supply Contract.
27.16 Where any Credit has accumulated under a Domestic Supply Contract and the relevant Domestic Customer requests that the licensee do so, the licensee must, save where it is fair and reasonable in all the circumstances for the licensee not to do so, refund, in a timely manner, any Credit which has accumulated under that Domestic Supply Contract to the relevant Domestic Customer. Where the licensee considers that it is fair and reasonable in all the circumstances for it not to refund any Credit which has accumulated under a Domestic Supply Contract in accordance with this provision, it must inform the relevant Domestic Customer of its view and of the reasons for holding that view.
In this condition, “Credit” means the amount by which the payments made by a Domestic Customer to the licensee under or in accordance with the relevant Domestic Supply Contract exceeds the total amount of Charges for the Supply of Electricity which is due and payable by that Domestic Customer to the licensee under that Domestic Supply Contract.
I am referring to DD arrangements where the account is expected to be at zero after 12 consecutive monthly payments.
Most consumers are aware that the Direct Debit (DD) scheme was introduced for the benefit of both consumers and suppliers. The main benefit for consumers is to smooth or even out payments, usually over a year, thus avoiding large winter bills. The benefit to suppliers is often recognised by a DD discount given to consumers for choosing this method of payment.
In practice it is common for DD accounts to run for 12 months from the date they were taken out (the anniversary date) by which time, if all has gone according to plan the account should be at zero. As energy consumption can vary it is accepted that at the end of the DD term there may be a debit or credit balance on the account. This is either paid or carried forward to the next DD term if the customer remains with the same supplier. However the debit or credit balance should not normally be excessive.
It is also accepted that as the DD term progresses there will be occasions when the account is either in credit or debit.
As an example an account opened in April should have sufficient credit on it to cover the coming higher winter months usage.
If you take a split of 75% winter usage and 25% for the remainder of the year then on a £1200 annual energy bill the monthly DD would be £100.00.
Cost of energy from April to Sept incl. would be £300 and Oct – March £900.00.
DD payment for these periods would be £600 each so there would be a credit balance of £300 at the end of Sept to cover the winter usage of £900 which the DD would only pay £600 towards.
The above example is to illustrate why a healthy credit balance in the autumn is not necessarily a sign of the supplier claiming excessively high DD payments.
There have been some posts complaining of suppliers refusing to refund credit balances as the supplier anticipated the customer would have a large debit balance by the end of the DD term. (See Standard Licence Condition 27.16 below.)
In the case of a consumer commencing a contract on say 1st October then using the above example it would be expected that the account would be £300 in debit by the end of March. This would not be a reason for a supplier to increase the DD as it is set to pay £600.00 by the end of the term. This will pay the £300 debt and £300 usage to achieve a zero balance by the end of its 12 monthly payments.
The above is the theory but in practice it is not quite so simple. To get close to the ideal DD a certain amount of information needs to be known.
You need to know your annual consumption of gas and electricity in kWh. If you don’t know what they are ask your supplier. Your existing or previous DD payments are not a good basis for calculating consumption.
If you are a newcomer or have only a short history of consumption then make an estimate as accurately as possible. Work on an annual average of around 20500 kWh for gas and 3300 kWh for electricity per annum. This is for a typical (average) household with gch and hw, so adjust these figures to suit your own property and circumstances.
Your consumption is then multiplied by the cost per kWh of each fuel and any discounts you are entitled to are deducted. The remainder is divided by 12. This gives you the monthly DD payment for each fuel over a 12 month year.
Keep an eye on your usage and do not delay in notifying your supplier of any changes that can affect the assessment of the DD payment. Examples are a change in the amount of people living in the property, alterations to the heating system, insulation or extensions/loft conversions, all of which could cause consumption to be raised or lowered.
Suppliers are required by law to act responsibly in the management of DD and are required to assess DD payments based on the best information available to them. If they reassess your DD and change it, they are obliged to give you an explanation in clear, plain and intelligible language the basis upon which any change has been made.
Receiving a communication from a supplier which simply states that after reviewing your DD they are changing it to £x per month is simply not good enough. The change has to be supported with facts and figure so that you can check whether it is reasonable or not.
These communications from suppliers have to be checked very carefully. There have been many recent posts regarding npower who have been notifying customers of sharp increases in their DD after conducting a review of their account. One reason has been that they have altered the length of the term of the DD in order to achieve a zero balance in less than 12 months.
A poster who opened an account with npower in Oct/Nov would have anticipated that the zero balance would be achieved 12 months later. They received a review in Sept which stated that the DD was to be increased to achieve a zero balance by their annual review which had been re-set for the spring.
Therefore with any notice of alteration you receive from your supplier check that the date they expect your account to be at zero is still in line with your anniversary date.
Some of you will be on fixed price tariffs of a length more than a year. Changes to the DD should not be caused by price changes but may be affected by a change in usage.
Monitor your usage and arrange for the DD to be changed if necessary. Suppliers might not review these types of accounts as regularly as others.
For most customers simple proactive management (e.g. recording and submitting meter readings regularly) of their energy consumption should avoid the bulk of the problems that arise with DD.
However that will not screen out the cases where a DD assessment is simply wrong or otherwise mis-managed.
If you can show that the DD has been miscalculated and is therefore unreasonable, then request the supplier to calculate it correctly and change it. If they refuse make a formal complaint. If this is not resolved to your satisfaction, complain to either Consumer Focus, the Energy Ombudsman or both. If neither of them can obtain a satisfactory outcome for you then you still have the County Court (Small Claims) as a last resort.
What may help you in any DD dispute are the Standard Licence Conditions which suppliers are required to follow in respect of DD. Familiarise yourself with them before entering into a dispute.
This is a broad brush approach to DD and not intended to cover every single problem.
In the case of any dispute you will have to follow your suppliers procedure. I would strongly recommend that if you enter into a complaints procedure for any reason then any communication you have with your supplier is confirmed in writing and sent recorded delivery.
Make notes of to whom and when you spoke to someone and what was said.
Telephone calls are not always logged, emails are mysteriously not received and ordinary letters occasionally never arrive. Keep copies of everything and print out the electronic signature of receipt of recorded mail.
If it comes to your attention that other customers are suffering a similar problem to you then inform Consumer Focus, even if your dispute is resolved to your satisfaction. Consumer Focus collates information and they may see a pattern of widespread wrongdoing by a supplier(s) and are able to bring this to the attention of Ofgem.
SCHEDULE 1
MODIFICATION OF THE STANDARD CONDITIONS OF ELECTRICITY SUPPLY LICENCES
UNDER SECTION 11A OF THE ELECTRICITY ACT 1989
Condition 27. Payments, Security Deposits and Disconnections
Add to existing Standard Licence Condition 27 ‘Payment methods under Domestic Supply Contract’:
27.13 Paragraphs 14, 15 and 16 apply where a Domestic Customer pays the Charges for the Supply of Electricity which are payable under its Domestic Supply Contract by way of regular direct debit payments of a fixed amount (which amount may be varied from time to time in accordance with the relevant Domestic Supply Contract).
27.14 The licensee must provide to each such Domestic Customer an explanation in clear, plain and intelligible language of the basis upon which a fixed amount (and any variation of that fixed amount) has been determined.
27.15 Save where a clear and express Principal Term of the relevant Domestic Supply Contract provides otherwise, the licensee must take all reasonable steps to ensure that the fixed amount of the regular direct debit payment is based on the best and most current information available (or which reasonably ought to be available) to the licensee, including information as to the quantity of electricity which the licensee reasonably estimates has been or will be supplied under the relevant Domestic Supply Contract.
27.16 Where any Credit has accumulated under a Domestic Supply Contract and the relevant Domestic Customer requests that the licensee do so, the licensee must, save where it is fair and reasonable in all the circumstances for the licensee not to do so, refund, in a timely manner, any Credit which has accumulated under that Domestic Supply Contract to the relevant Domestic Customer. Where the licensee considers that it is fair and reasonable in all the circumstances for it not to refund any Credit which has accumulated under a Domestic Supply Contract in accordance with this provision, it must inform the relevant Domestic Customer of its view and of the reasons for holding that view.
In this condition, “Credit” means the amount by which the payments made by a Domestic Customer to the licensee under or in accordance with the relevant Domestic Supply Contract exceeds the total amount of Charges for the Supply of Electricity which is due and payable by that Domestic Customer to the licensee under that Domestic Supply Contract.
0
Comments
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Great stuff :j
Simple straightforward advice.0 -
I think that the whole post can be summarised with the above paragraph.DirectDebacle wrote: »Therefore with any notice of alteration you receive from your supplier check that the date they expect your account to be at zero is still in line with your anniversary date.
And I think I disagree with it.
I appreciate that it is unfair for the account to always be run in credit as that means the energy companies are benefitting from our money and we're not.
But I think that it is a much bigger problem if the account is in debit if the customer wants to switch to another provider. How annoying and unfair is it if the customer can switch to get cheaper bills but isn't allowed to as they can't afford (in terms of cash-flow, if nothing else) to pay off their debit balance to their existing supplier.
Therefore it makes complete sense to me for the "zero date" to be in April.
I think that this should be achieved by the first "year" being longer than 12 months where necessary. E.g. start a new contract now and the first "zero date" to aim for should be April 2013.
I don't know if that is how any of the companies currently work or not.0 -
JimmyTheWig wrote: »
I appreciate that it is unfair for the account to always be run in credit as that means the energy companies are benefitting from our money and we're not.
But I think that it is a much bigger problem if the account is in debit if the customer wants to switch to another provider. How annoying and unfair is it if the customer can switch to get cheaper bills but isn't allowed to as they can't afford (in terms of cash-flow, if nothing else) to pay off their debit balance to their existing supplier.
Therefore it makes complete sense to me for the "zero date" to be in April.
I think that this should be achieved by the first "year" being longer than 12 months where necessary. E.g. start a new contract now and the first "zero date" to aim for should be April 2013.
I don't know if that is how any of the companies currently work or not.
I joined a new Supplier in early December 2010. Under your proposal, to 'april align' by 2012, I would have had find a further £400 for my gas over and above my existing £100 per month. That would have taken the payment to £125 per month.
I have no idea how this benefits me? I was on a tariff which ended on December 2011.At that date under the existing arrangement my balance would have been around £100 in debit.
I'll stick to the original intention of the DD Scheme thanks.:D0 -
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JimmyTheWig wrote: »It would benefit you if in February 2012, for example, you want to switch onto a better deal and don't have the £200 cash to cover what you owe.
No I would time the switch to coincide with the end of contract date.31/12.
If I don't have the £100 (or £200 as at your date), I certainly don't have the additional £325 to find to finance the Supplier's balance sheet.
What you have advocated is a DD Deposit Payment in addition to the existing Scheme.
Supplier's like DD's, it regularises cash flow over their financial year and helps reduce bad debts. Hence the discount, usually around 6%.
I for one aren't giving them the benefit of my money as i prefer to invest it wisely. For that reason I'm out of your Deposit Scheme.
0 -
Receiving a communication from a supplier which simply states that after reviewing your DD they are changing it to £x per month is simply not good enough. The change has to be supported with facts and figure so that you can check whether it is reasonable or not.
This part is actualy wrong according to the Direct Debit Service User's Guide and Rules to the Direct Debit Scheme, Version 3.3.
You do not need a full explanation on an amended DD, just a document sent with a 2 week notification period in written format sent to the bill payer, stating the new amount the Company is seeking to take from the payers bank account.0 -
You are correct in terms of the DD Guarantee Scheme. I avoided mentioning this in my original post so it would not become confused with a suppliers obligations to customers as required under the Standard Licence Condition 27( reproduced at the end of my post).
The Direct Debit Guarantee Scheme applies to all DD agreements. SLC 27 only applies to domestic energy suppliers and is an additional requirement placed upon them by Ofgem. They are still bound bythe Direct Debit Rules.0 -
JimmyTheWig wrote: »I think that the whole post can be summarised with the above paragraph.
And I think I disagree with it.
I appreciate that it is unfair for the account to always be run in credit as that means the energy companies are benefitting from our money and we're not.
But I think that it is a much bigger problem if the account is in debit if the customer wants to switch to another provider. How annoying and unfair is it if the customer can switch to get cheaper bills but isn't allowed to as they can't afford (in terms of cash-flow, if nothing else) to pay off their debit balance to their existing supplier.
Therefore it makes complete sense to me for the "zero date" to be in April.
I think that this should be achieved by the first "year" being longer than 12 months where necessary. E.g. start a new contract now and the first "zero date" to aim for should be April 2013.
I don't know if that is how any of the companies currently work or not.
I wouldn't object to such a scheme if it was introduced as an alternative option to the current 'default' scheme.
What prompted my original post were a steady stream of posts complaining of greatly increased DD payment from different suppliers and the posters not understanding why there had been such a large increase.
In some of these posts it was evident that the reason the increase was so large was because the date they anticipated the account to be at zero was not the date they were expecting. It had been reset to the spring whereas the anticipated year would have finished e.g. in the autmn.
If suppliers for whatever reason would prefer all DD accounts at zero in the spring, then they should make this an option for customers to move their balancing date to then.
What is happening is that the suppliers are attempting to force customers to this date and not giving the required information and/or notice to customers that this is happening.
If a springtime balance date is what suppliers prefer then they can offer it as an option and see how many customers take it up. It will suit some but not others.
It is unfair to force it on all and could cause some severe financial problems.0 -
You would.No I would time the switch to coincide with the end of contract date.31/12.
I would try to (though might not get around to it).
Many others wouldn't.
The extra £25 a month would be budgetted for and so affordable. £100 or £200 out of the blue would be too much for many.If I don't have the £100 (or £200 as at your date), I certainly don't have the additional £325 to find to finance the Supplier's balance sheet.
The thing is, we see many on these boards who can't switch because they are in debt to their current provider. It wouldn't be a problem for us - we've got enough liquidity to be able to switch even if we owed them money - but it really _is_ a problem for many.
I personally don't mind going in to credit over the summer with the knowledge that everyone was able to switch when they wanted.
You see, the more people able to switch, the better the competition. And the better the competition the lower the prices.
Which means we all benefit.0 -
This is really answered in my post #10.DirectDebacle wrote: »they can offer it as an option and see how many customers take it up. It will suit some but not others.
It is unfair to force it on all and could cause some severe financial problems.
Interestingly, I think it would be the people who would find this gave them severe financial problems (i.e. those who couldn't afford a jump from £100 to £125) who would be the ones who would benefit the most (i.e. be the ones unable to switch if in debit).0
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