Energy firms will have to stop unfairly grabbing consumers' money by setting exorbitant direct debits (DD) demands, under proposals announced today by the industry regulator.

The move follows an MSE campaign aimed at ensuring providers are banned from making millions of pounds by setting payment demands well in excess of your true consumption, as often happens (see the Energy Direct Debit guide).

Then, many families face a battle to get their money back but the regulator, Ofgem, is also cracking down on energy firms that hang onto your hard-earned cash.

Ofgem says its new regime should be in place for this winter but will first consult on the legal wording of its plans.

Martin Lewis, creator, says: "This is a step in the right direction but until we know more we don't know if it'll fill the regulatory gaping hole. DDs are one of the key causes of energy complaints in the MoneySavingExpert forums.

"What we desperately need is an absolute right to challenge the amount the DD is set at, and a quick, independent appeals process.

"Until then, people must give meter readings every time they get a bill and lobby and hassle to ensure they're not overpaying."

Earlier this year, consumer lobby group Which? accused energy firms of effectively receiving interest-free loans by raising DDs too high.

The regulator's proposals come in two main parts:

  • Accurate DD demands. Power firms MUST set DD demands based on true consumption and not based on their estimates. This will require taking regular meter readings. Firms will also have to clearly explain how DD demands are set.
  • Refunding those in credit. When customers ask for any credit back, this must be given back, unless the supplier can justify holding onto the cash. There will be no compulsion on firms to automatically give refunds so the onus is on you to ask.

Ofgem chief executive Alistair Buchanan says: "We are concerned that if customers cannot clearly understand how their payment plan works they will lose confidence.

"The proposed licence condition will help give customers peace of mind that the amount they are being asked to pay is based on their likely energy use. It will help ensure suppliers are more transparent about how they calculate payments."

Garry Felgate, head of the Energy Retail Association, which represents power firms, says: "Energy companies have signed up to a commitment on DD arrangements which means they will make sure customers are happy with how their DD works.

"They'll do this by explaining the refund process, explaining different payment methods and how customers' payment methods will be reviewed to match their energy use."

Further reading/Key links

Energy direct debits guide: Lower energy direct debits
Slash energy costs: