Energy regulator Ofgem clamps down on direct debit overpayments

Energy suppliers will have to repay money overpaid by direct debit customers every year under new proposals from regulator Ofgem.

The regulator said that at its last count £1.4bn of customers’ money was held by the energy providers due to lags in adjusting for overpayments collected through direct debits.

Ofgem said all that money at least would have to be returned, an amount it estimated as being worth £65 per customer though consumer groups say the number is often many times that,

Suppliers base their monthly deduction on an estimate of annual consumption, but Ofgem said that monthly payment should be adjusted over the course of a year as the actual amount of energy used becomes clearer.

“Suppliers should set the payments so that customers’ credit balance returns to £0 each year on the anniversary of when they started the payments,” Ofgem said. 

“However, many customers who pay by fixed direct debit are overpaying resulting in surplus credit balances.”  

The ‘auto-refund’ policy would require suppliers to refund any credit balances, for domestic credit customers paying by fixed direct debit, above £0 each year on the anniversary of when they started their contract, Ofgem added.

Jonathan Brearley, the regulator’s chief executive, said:  “These new proposals would ensure that suppliers are not holding onto more of customers’ money than absolutely necessary, potentially returning millions of pounds of customers’ money.

“This is an important step in making the retail energy market fairer for consumers at a time when many are facing financial hardship.”

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