Refund credit balances when customers leave, Ofwat tells retailers

Ofwat is consulting until 9 August on changes to the Customer Protection Code of Practice in the non household retail market that would give greater protection to business customers who have accrued credit against their account – for example, through pre-payment and deposits.

Code change, CP0010, argued retailers should:

• ensure customers are briefed on the risk posed by their credit balances held by retailers, notably that they may lose the balance should the retailer become insolvent (new customers will need to be notified prior to the agreement of a prepay contract, and both new and existing pre-pay customers must be made aware on bills);

• make customers aware on bills of the amount of credit built up, what this relates to, and the options available to them – which will vary but could include reclaiming the money, offsetting it against future bills and at the very least should include a reminder that the customer can switch if they are not happy with the terms the current retailer offers; and

• refund credit balances to customers within ten days of issuing the final bill “where they can do so”. If this is difficult, retailers must record where payments are late or unsuccessful.

Ofwat ruled out an earlier proposal at this stage, to introduce a data reporting requirement to bring more clarity on the amounts and form of customer credit held. It said work would continue on that and a consultation follow in due course.

Ofwat’s work on credit balances began in 2019. A Request for Information revealed that £100m of credit was held across all retailers, and that around 15% of this was associated with former customers. The regulator noted there were some benefits for customers from having credit, including spreading costs and securing better deals. But it pointed out there were gaps in current credit provisions in the market. These included that retailers are not currently obliged to return credit balances to their customers upon account closure (for instance through switching or ceasing to trade); many customers are unaware of their credit balances; and retailers are not required to keep their customers informed where credit has built up.

To date, two retailers – Aquaflow in 2019 and Tor Water in 2020 – have exited the market and Ofwat has had to transfer their customers under Interim Supply Code arrangements.