Energy firm demands urgent crackdown on hidden payment penalty

Energy bills: Couple discuss the increase in their prices

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A major energy company has urged the Government’s industry regulator to crack down on a penalty for “careful customers”. It’s this portion of bill payers that get up to £254 extra slapped onto their bill if they are not on direct debit payment plans. Octopus Energy has called on Ofgem to end payment penalties for standard credit customers, who are being charged more than three times extra than they were in April 2021, when the this additional fee stood at £84. Around five million customers are said to be affected, meaning UK could be paying around £1.3billion more a year in surplus charges.

Around three-quarters (75 percent) of customers who pay their energy bills by cash, cheque or card are unaware that they are being charged more than customers who pay by direct debit, according to evidence released by Octopus Energy.

This charge disproportionately affects older people, with almost a third of people who pay via cheque or cash being over 65.

While Ofgem plans to clamp down on this by 2024 and 2025, Octopus is urging the regulator to bring the proposed review date forward.

Non-direct debit payment methods are said to result in additional costs to energy suppliers too. Back when Ofgem introduced the energy price cap in 2019, which is a maximum annual tariff applying to households with typical energy usage, it calculated that the extra cost was £81.

However, this has skyrocketed in line with surging energy costs triggered by Russia’s war in Ukraine.

Now, energy suppliers can slap a typical customer with a £254 charge a year for not paying by direct debit.

Octopus Energy CEO Greg Jackson said: “Whilst the global gas crisis is beyond the control of the UK, Ofgem need to do all in their power to drive down the sinister, hidden costs creeping up on pensioners.

“Committing to review it only by the winter of 2024/25 is simply not soon enough.

“Suppliers do incur extra costs for other payment methods, but this surcharge has got out of hand and we’re asking Ofgem to review it as a matter of urgency – especially with the price cap rising again in April.

“It’s all the more pernicious for people who pay carefully on time, every time and think this gets them a fair deal. In reality they’re being gouged – and this practice must be stopped.”

Octopus Energy is also urging everyone who pays by receipt of bill or standard credit to switch on direct debit if they can to avoid unnecessary bill charges

The firm said it decided not to pass on this surcharge to customers until October 2022, when it raised it to £80 per customer to cover the additional cost. Octopus Energy has said absorbing the costs on behalf of customers costed it an extra £46million.

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According to data from the Department for Business, Energy and Industrial Strategy, 17 percent of electricity customers are on standard credit payment plans.

These customers receive their energy bills once a month or once a quarter. They arrange payments once the bill is received based on an estimate of how much energy has been used, or based on a meter reading. On there other hand, direct debit customers are charged automatically.

For prepayment meter customers, they need to top up their accounts with credit on a pay-as-you-go basis to keep the energy flowing. This payment plan is typically more expensive than direct debit, despite a third of customers paying via this method reportedly being classed as vulnerable.

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