Energy regulator orders suppliers to take urgent action on direct debits after finding major failings

It reviewed 17 large suppliers, and found one (TruEnergy) had major issues, while a further four suppliers (Ecotricity, Good Energy, Green Energy UK and Utilita Energy) were found to have 'moderate or severe' weakness. Ofgem has demanded immediate action from these suppliers, asking these firms to submit action plans within two weeks, and requiring all suppliers that have doubled their customers' direct debits to review them to ensure they are fair.

Ofgem identified a number of issues, including inadequately documented or followed processes, weak governance and controls, and an overall lack of a structured approach to setting customer direct debits.

We've been calling on Ofgem to tackle high direct debits, after hearing widespread complaints that they had been hiked way over the average 54% increase to the price cap in April. We recently submitted our energy direct debits survey, which the regulator used to aid its investigation into this issue. Our survey found that a quarter of those in credit and on a price-capped tariff said their direct debit had doubled.

Last week, Martin Lewis and the founder of Ovo Energy brought together the chief executives of major energy suppliers and key charities to try and deal with some key energy issues, including how to make direct debits more understandable.

The regulator said that, where failings are found, it expects suppliers to adjust any miscalculations, including making repayments, and to consider if goodwill payments are warranted.

You have a right to a 'fair' direct debit under current rules, so if you feel yours has been set too high, see MSE's tips on how to challenge your direct debit). For help with your energy bills, see Martin's 'Should you fix your energy deal?' analysis of the latest deals and our What to do if you're struggling to pay your energy bills guide.

What were Ofgem's findings? And how does your supplier stack up?

Ofgem found that over seven million people on a standard variable tariff saw an increase in their direct debit between February and April 2022 (not surprising as the price cap rose by 54% on 1 April 2022). On average, direct debit levels for people on standard tariffs increased by 62%, but 8% (around 500,000 households) saw direct debits double. It also found evidence that some suppliers' processes are 'not as robust as they could be', and that this could mean 'inconsistent, incorrect or poor treatment for customers'.

On suppliers' individual performance, Ofgem divided its findings into three categories:

• Suppliers with 'moderate to severe weaknesses': TruEnergy, Ecotricity, Good Energy, Green Energy UK and Utilita Energy. Weaknesses found included poorly documented and followed process, weak governance and controls, and a lack of a structured approach to direct debits.

  Ofgem is starting compliance engagement with these suppliers to encourage fast and robust improvements to processes and to reassess customer direct debits where required. If they don't act, Ofgem says it will consider enforcement action.

• Suppliers with'minor weaknesses': Bulb, E.on, Octopus Energy, Outfox the Market, Ovo, Shell and Utility Warehouse. Some weaknesses or gaps in their processes were found, including a lack of documented policies or guidance for staff, or not taking account of all relevant info when setting direct debits, or risks that some customers' direct debits are not assessed when needed.

  Ofgem says it has started compliance engagement to secure improvements.

• Suppliers with 'no significant issues': British Gas, EDF, Scottish Power and So Energy. These were found to generally have robust processes in place. Ofgem said it made some recommendations for improvement, and has asked them to review customer direct debits to ensure they are correct.

How direct debits work – and what you can do if you think yours is too high

When setting monthly direct debits, in general suppliers should look at your annual estimated cost, then divide this by 12 so you pay the same amount each month, smoothing out high-use winter and lower-use summer costs.

However, a supplier may review payments periodically and adjust them if it thinks you're not paying enough, or if prices rise – as they did in April with the 54% rise to the price cap.

Yet many have seen increases way above this, and while there are legitimate reasons – including for those coming off cheap fixes, moving to expensive fixes, or who are in energy debt – large numbers on standard tariffs, some of who are in credit, have seen hikes well above the average.

Under the current licence conditions, firms have to set "fair" direct debits and must take "all reasonable steps" to make sure direct debits are based on the most current info available, unless their terms and conditions specifically say otherwise.

So if you think yours is wrong, you do have the right to challenge – the best thing to do is to submit an up-to-date meter reading, then speak to your supplier and politely ask it to justify the rise. If it can't, request that it is lowered. If it refuses, make a formal complaint and take it to the Energy Ombudsman. For more, see how to challenge your direct debit.

Although it's worth noting that, with more huge increases coming in October and the price cap predicted to rise by 65%, it could be worth considering paying a little more now to soften the bill shock.

Separately, Ofgem is currently consulting on tightening the rules on the level of direct debits that suppliers can charge, ensuring firms are obligated to set direct debits using the "best and most current info" at all times so credit balances do not become excessive.

What does Ofgem say? 

Ofgem chief executive Jonathan Brearley said: "We know how hard it is for energy customers at the moment, so it's crucial that the amount they pay each month in direct debits is right so they can manage their money. 

"Suppliers must do all they can, especially during the current gas crisis, to support customers and to recognise the significant worry and concern increased direct debits can cause.

"We know there is some excellent service out there, but we want to make sure that it's consistent and standard across the board. It's clear from today's findings on direct debits that there are areas of the market where customers are simply not getting the service they need and rightly expect in these very difficult times.

"Today's findings show that with the urgent changes we are now expecting, the current system will be much fairer for consumers. Bringing down the price of gas is not in Ofgem's control, however we will do all we can to have a fair system and ensure suppliers look after their customers."