Retailers told to do more to reduce business customer credit accrual

Ofwat is consulting until 16 September on plans to bolster business customer protections concerning accrued credit balances held by retailers.

The regulator has reviewed progress since introducing protections in 2022 into the Customer Protection Code of Practice (CPCoP), but found mixed results:

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

• Credit balances in ‘closed’ customer accounts have 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.

It has proposed code change CP0014, which involves amending the CPCoP to: 

• Strengthen measures aimed at promoting customer awareness of credit balances by requiring retailers to provide extra information to customers in credit around 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. 

• Minimise the instances of late or unsuccessful credit refunds following account closures by requiring retailers to keep a log of their attempts to refund credit after issuing a final bill and to provide clear and accessible information online about how customers (current and former) can request credit balances refunds at any time. 

• Enhance the management of credit in customers' live accounts by requiring retailers to refund credit balances within ten days of a customer request, and to annually communicate with customers who have been continually in credit for the preceding 12-month period that they can request a credit refund.

Ofwat added that it plans to 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 is also consulting on its intention to reject 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.