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Ofwat considers protections for customer credit lodged with retailers

by Karma Loveday

Ofwat is considering whether there is a case for strengthening protections for business customers’ credit balances, should their water retailer fail.


Currently there is no mechanism in place for customers to recover credit lodged with retailers – for example, credit on account for the pre-payment of services or deposits – should the retailer become insolvent and exit the market. Ofwat has issued a call for information until 30 April on current arrangement and possible remedies.


The regulator said it was minded to impose some form of requirement via the Customer Protection Code of Practice for retailers to set out clear statements on the risks arising from pre-payments in their communications with customers, for example on bills, and to make clear to customers the alternative options available to them. It is also minded to increase its monitoring of the situation, to bring greater clarity around the amount and form of customer credit held by retailers to ensure a focus on its proper management.


Ofwat went on to say it may consider regulatory changes to ensure fair treatment for customers – for instance, some form of limit on the amount of credit that can be held, or an obligation to return a customer’s credit balance on the closure of the customer’s account.


Finally, the regulator said it was not minded to require some form of insurance, but may consider it should evidence of significant customer detriment appear. These could include: a requirement on each retailer individually to put in place a scheme to insure their customers’ credit balances (for example, through placing money in a ring-fenced trust); a requirement on retailers to act collectively to pool risk by all contributing to a fund which can be drawn on to reimburse customers upon a retailer’s insolvency; or the payment by retailers of premiums to a third party to provide cover for customers’ credit balances.


To date, two retailers have exited the water market.

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