Ofwat acts on customer credit accrual

Ofwat has confirmed its decision to press on with changes to bolster business customer protections concerning accrued credit balances held by retailers.

Under code change CP0014, it will amend the Customer Protection Code of Practice (CPCoP) to: 

• Strengthen measures aimed at promoting customer awareness of credit balances. Every three months, retailers will need to inform customers in credit and advance-pay customers of the risks they face – such as losing credit if a retailer becomes insolvent or if the customer vacates the premises without providing adequate contact and/or bank details. Unmeasured customers will be excluded, except in certain circumstances. 

• Minimise the instances of late or unsuccessful credit refunds following account closures. Retailers will be required to keep a log of their attempts to refund credit (of over £50) after issuing a final bill and to provide clear and accessible information online about how customers (current and former) can request credit balance refunds at any time. 

• Enhance the management of credit in customers' live accounts. Retailers will be required to refund credit balances within 20 working days of a customer request (with some exemptions).

The changes will be implemented by 17 April.

Ofwat added that it will monitor balances in live and closed accounts regularly as part of its financial resilience Request for Information and annual CPCoP compliance monitoring. It will also collaborate with CCW to track customers' complaints regarding credit refunds.

Ofwat rejected a code change proposal, CP0015, raised by CCW which would require retailers to annually refund credit balances to business who pay by Direct Debit unless they choose to opt-out of this arrangement. Ofwat said there were substantial logistical and cost barriers to this, and that the proposal could inadvertently result in retailers being required to take action which misaligns with customers' preferences.

The moves follow a July consultation and a review of progress since credit protections were introduced in 2022 into the CPCoP. This unearthed evidence that further protections were needed. Ofwat found:

• Credit balances in ‘live’ customer accounts had decreased by £15m since March 2022 to £115m in March 2024.

• Credit balances in ‘closed’ customer accounts had increased by £13m, from £114m in historical credit when the protection was introduced in March 2022, to £127m in March 2024. Ofwat said it expected retailers to try to refund historical credit even though this was accrued before the changes were introduced.

Ofwat noted there were some legitimate reasons for closed accounts to hold credit, including retailers not retaining customer bank account details; low engagement from customers – for instance in not providing their details or cashing cheques, making it hard to provide refunds once accounts are closed; and in the case of multi-sites, credit being netted off against debit on other accounts.

Nonetheless, it said more must be done as retained credit balances create direct financial loss for affected businesses, and more generally risk undermining customer confidence in the market.