Review of Guidelines for Dealing with Household Customers in Debt

Transcription

1 Review of Guidelines for Dealing with Household Customers in Debt An Ofwat consultation CCWater response January 2007 January 2007

2 OFWAT: REVIEW OF GUIDELINES FOR DEALING WITH HOUSEHOLD CUSTOMERS IN DEBT General Position 1. The Consumer Council for Water provides a strong and independent voice representing the views and interests of all water and sewerage consumers in England and Wales. We operate through nine regional committees in England and one in Wales. 2. We welcome Ofwat s review of its Guidelines on dealing with customers in debt. We had the opportunity to contribute to pre consultation discussions and to attend the workshop arranged by Ofwat earlier in the year. This provided a useful discussion forum for stakeholders to aid the development of proposals for revision of the guidelines in advance of the publication of the consultation. 3. Household debt is reported to be higher per capita in Britain than in any other European country. It is not surprising that the debt levels of customers within the water industry have risen over recent years with household debt for water and sewerage services (more than 3 months old) increasing in from 760m to 814m and reportedly adding 11 to each customer s annual bill. This includes the costs of collection, write-off and interest costs where revenue is not recovered. Amongst those customers who are paying bills and subsidising debtors there are inevitably those who will themselves be struggling to meet their commitments but continuing to do so. 4. Water companies can no longer disconnect domestic households for non payment of water charges. They have had to get to know their customer base better and refine their collection methods to take account of this. Although initially there was a lack of awareness amongst the general public of the inability of companies to disconnect this information is becoming more widely known. 5. Research carried out in 2003 Paying for Water on behalf of WaterVoice, predecessor to the Consumer Council for Water, reported that customers with water debt in the main divide into three groups can t pays - those genuinely struggling financially won t pays - those who take the line Why should I pay and poor money managers in the main those who did have sufficient financial resources but did not manage them effectively (Can t cope). Some people who are genuinely struggling can t pays also fall into this category. 6. Follow up research conducted by UKWIR in 2004, Water Industry Debt Minimising the Problem of Non Payers confirmed this categorisation and refined it further as Strugglers including those distressed and vulnerable Defiant debtors or calculating debtors Poor Money managers unaware and denying debtors

3 7. Affordability of water and sewerage services has been identified as being likely to be a more pressing issue where water costs are highest as a proportion of income, noting that the proportion could rise towards 7% for low income households in some regions. Government does not propose to match the scheme introduced in Northern Ireland which caps water charges at 3% of income, and there is no equivalent to winter fuel payments to assist pensioners with water costs. Although there is undoubtedly a group of won't pay customers, who simply find that their water bills are relatively easy to avoid without consequences, there are also can t pays and groups who do pay but with considerable difficulty. 8. Water consumers on low incomes those who struggle but maintain their payments - are therefore suffering a complex and interlinked set of downsides from policy approaches to water affordability and associated debt issues; there is limited help with bills through the benefits system; such help as is available for vulnerable groups is linked to average household charges, its value to those assisted therefore declines as average household bills rise; the cost of rising debt as water bills become unsupportable for low income households is ultimately paid for by other paying customers, including those who are struggling to pay; water customers tend to be paying not just for the cost of the service they receive, but for some of the social cost of rising debt and the cost of an extensive programme of public goods in the form of environmental improvements from which they may not directly benefit; the impact of this environmental burden is not graduated in relation to household income or expenditure, as it would be if it were supported through taxation. In many regions, depending on tariff structure, it falls as a flat rate addition to bills. General Comments on the Guidelines 9. We support the review of debt guidelines subject to the following comments but we urge all stakeholders not to lose sight of the interacting factors that are driving debt and the distributed cost of debt upwards. Companies can do only a limited amount to control them, and decisive intervention is in the end a matter for Government. 10. We welcome the fact that the guidelines continue to provide for individual company flexibility which will allow companies to maximise the available options including segmentation and targeting, in determining a customer s status and then pursuing an appropriate and sensitive, course of action. We are also working with Water UK to identify strategies for companies to adopt to encourage the poor money managers and those who can pay but don t, to pay their water bills and avoid falling into debt.

4 11. In addition to contacting customers who are not making payments, companies should consider making regular contact with past debtors who have set up, and are adhering to, regular payment plans. It would be positive and encouraging for customers to see their debts getting smaller. Furthermore, customers in debt are likely to have multiple creditors, all competing for precedence, and these reminders would keep the water debt in focus. 12. Paragraph 1.4 in the Ofwat Consultation document states that Companies are accountable for their own decisions in the way they choose to manage their business and it is for them to decide the most cost-effective way to collect revenue It appears that water companies are not subject to the Consumer Credit Act (CCA) or the OFT guidelines on the collection of debt, and therefore their behaviour in pursuing debt is not subject to the same rules as other companies around harassment of debtors. The guidelines should also include a requirement that commitment to the CCA and the OFT guidelines should be evident in companies codes of practice and in debt management procedures to ensure customers have some redress if they believe a company is harassing them for recovery of a debt. 13. The consultation document states that following the consultation we may also make some further small changes to the guidelines to update the style and layout. We consider that the amendments to the guidelines identified by this review, although relatively minor, may necessitate a wider than proposed change to ensure that the guidelines are clear, unambiguous and well drafted whilst remaining comprehensive. 14. Whilst such things are inevitably subjective CCWater is considering creating a good practice register in the area of debt recovery. Effective, appropriate debt recovery procedures are important to all water bill receivers: the do pays, can t pays and won t pays. Consultation questions 1. Do you agree with the proposals set out in chapter 3 on the following? Local authority arrangements (See section 3.1 proposed words added to recommend that companies should take care when making agreements with local authorities (LAs) to ensure that LA billed customers are treated fairly.) We would welcome evidence on whether eviction of customers by LAs purely for the non-payment of water bills is a significant problem in practice before making a decision on whether guidance on this issue should be added to the guidelines.

5 15. It is accepted that local authority or housing association agreements can have advantages for both customers and companies in that water charges are collected alongside customers rent, providing them with an opportunity to budget and a regular income for companies. 16. There are however significant disadvantages for both in that there is no direct relationship between the company and the customer. It can be difficult for CCWater to gain an understanding of the needs of this section of the customer base. In Wales especially this is of considerable concern as a large proportion of the customer base has its charges collected by Local Authorities. 17. From the companies perspective this gap in knowledge could have an effect in the future if former occupants of local authority or housing association properties become private sector tenants or owner/occupiers. As there is no established payment culture between the company and the customer there is an increase in the risk of a failure to establish a payment culture at the new premises. 18. It is also more difficult to ensure that customers in debt are made aware of the free meter option and the possibility that there are potential savings to be made by its use. The availability of the Vulnerable Groups Tariff, the third party deduction scheme Water Direct-, flexibility of payment arrangements, Direct Debit discounts, Surface Water Drainage Rebates and water efficiency information are all options which are likely to be denied to customers whose water and sewerage charges are collected at the same time as the rent. Companies should be encouraged to build communication channels with these customers. 19. There are also difficulties experienced by these customers in ascertaining how charges have been calculated. We therefore strongly support the addition of the words added at principle 5 expectation 9 in the guidelines. We would like to see this strengthened to ensure that indebted customers whose charges are collected by third parties are made aware of the additional options available to them, as detailed above, and that they are not in any sense disadvantaged in comparison to any other category of customer. 20. There is a limited amount of information available from the CCWater Committees about eviction, or threat of eviction, by Local Authorities for non payment of water bills. This limited information could be a reflection of the isolated nature of customers whose charges are collected by Local Authorities and we suggest that Citizens Advice should be approached to provide further evidence to assist in determining whether this is a problem. 21. Despite the lack of available evidence there is however a significant risk to these customers in the threat of eviction due to non payment of water and sewerage charges. There is a growing emphasis by Local Authorities on outsourcing, and water companies should ensure that they have an appropriate measure of control should a Local Authority, or indeed a Housing Association, transfer the actual collection of charges from a direct collection arrangement to an outsourced arrangement.

6 22. We recommend that the guidelines encourage all companies to involve CCWater committees in both the agreement of terms and conditions of any potential schemes whilst they are being negotiated and the production of a leaflet for customers whose charges are collected by Local Authorities detailing the vulnerable groups scheme, meter option etc. 23. CCWater may, in the future consider undertaking a detailed review of the relationship between Local Authorities/Housing Associations, water companies and their customers. Third party debt sale (section 3.2) proposed words added to recommend that any third party debt agents used when selling debt are selected with care 24. We accept that Ofwat does not have any power to prevent or restrict an undertaker from selling unrecovered debt to a third party. However such an action should be actively discouraged by Ofwat and should be used by companies as a last resort measure, only after the normal debt recovery procedures have been fully exhausted. In addition it is difficult for companies to establish a relationship with a customer to recover the current year s charges if older debt is concurrently being chased by a third party debt recovery company. It is essential that companies expect third party debt recovery agents to operate in accordance with their own Code of Practice on debt recovery. Void/unoccupied property notices (section 3.3) proposed words added to clarify when such notices should be used 25. We agree that void notices should not be used to threaten disconnection of household customers in order to prompt payment or contact where customers are believed to be in residence. Clarification of the wording under this principle is suggested as Notification of disconnection through void property notices should only be used where the company can demonstrate that it has made reasonable attempts, including a visual inspection, to ascertain that the property is in fact unoccupied, before the issue of a notice. Void property notices are not a mechanism for managing debt. 26. We recognise that void property notices are a very efficient method of prompting a customer contact. To prevent abuse of this procedure companies should be asked to report upon the number of void property notices that they issue each year and how many properties are actually cut off as a result thereof.

7 Commercial customers (setion3.4) proposed words added to clarify which customer groups the guidelines apply to 27. Title page - Addition of Household to the title CCWater recognises the differences experienced by companies in collecting debt from household customers as compared with commercial customers, whose supply can still be disconnected. 28. Notwithstanding this there are many small and medium size businesses and charities who may also struggle to pay their bills and it is in the interests of companies to maintain contact, encourage dialogue and deal sensitively with these customers, in a similar way to that adopted for domestic customers, to maintain a culture of payment. Ultimately it is not in either party s long term interests for businesses to have to cease trading when the water supply is disconnected with a resultant effect on local economies and communities. Words to this effect should be added to the guidelines and to maintain flexibility in approach Household should be removed from the title. 29. It is important that mixed use premises, where part of the property is occupied as someone s sole home, are not treated as commercial premises or the occupants threatened with disconnection, or indeed disconnected. There is concern that workers occupying premises as part of their conditions of employment could be disconnected when the employer of the business fails to make the necessary payments. 30. Regardless of whom the bill payer is it is important to ensure, for reasons of health and humanity, that supplies are maintained and debt recovery action is in accordance with the guidelines. The guidelines should be amended to reflect this view and an explanation should be provided in the guidelines to the effect that any customer, including those living in mixed use premises, is covered by the guidelines. Third party deduction scheme (Water Direct) (section 3.5) proposed words added to reflect current use of the scheme. 31. We are continuing to lobby for changes to this scheme to extend its scope but agree that in the interim companies should be encouraged to maximise the potential number of eligible participants by being pro-active in making the scheme available and promoting its availability. 32. CCWater is uncomfortable with the ability of companies to use the Water Direct scheme for their customers without their consent and inform them accordingly afterwards. In an employment situation, an attachment of earnings order could only be made by the Court, and employers cannot make deductions from wages without notification to the employee in comparison this appears to be excessively onerous treatment of those on income related benefits. There

8 should be an expectation that the company has made every effort, in a timely manner, to contact the customer and request their agreement to go onto the scheme before it approaches DWP to set it up. Debt management companies (section3.6) - propose that no words are added due to the preference to refer to non-fee charging agencies such as Citizen s Advice. 33. Customers should not be advised to contact fee paying debt management companies but proactively encouraged to contact organisations that offer debt management services without a charge. Any customers advising water companies of their intention to approach a fee paying company should also be advised of the existence of similar services which do not incur a charge. Water companies should not promote the services of fee paying debt management companies. Specific reference should be included in the guidelines to this effect. 2. Do you agree with the additional amendments to the guidelines shown as track changes in appendix 1? If you do not agree, please explain why not and propose alternative words if appropriate. Principle 1: Companies should be proactive in attempting to contact customers who fall into debt. Current Practice 34. We accept that removal from the guidelines of the suggested reasonable period of 21 days for the issue of a reminder and a minimum of 14 days will provide opportunities for companies to be totally flexible in the timescales between the issue of bills and the subsequent reminders. However any timetables adopted by companies should continue to reflect reasonable periods which do not increase the difficulties customers face when reminders are received for payments which have been made. We consider that best practice would be to retain the reasonable period of 21 days and the minimum period of 14 days. 35. It is important that sufficient time is allowed between bills and reminders for any payments to be processed and recorded in companies reminder systems. Inaccurate reminders cause distress, confusion and disruption of payment cycles, especially to customers who are paying small amounts on a frequent basis. CCWater believes that the previous timescales were flexible and should be retained. 36. We are also aware that quite often bulk mailings of reminders by companies cause problems for all, companies and customers, when insufficient resources are available to deal with the resulting contact from customers. This difficulty should be acknowledged in the guidelines.

9 Expectations 37. Consideration should be given to including an expectation that companies have sufficient resources available to deal with any contacts as a result of outgoing bulk debt related mailings. It is possible that customers may call the company only once to advise of any difficulties, or even to make a payment and, in the interests of all, any such contact must be captured. 38. Expectation 2. The wording regarding 21 and 14 days should be retained as best practice. 39. Expectation 4. Companies must document each effort that has been made to contact the customer (including telephone calls and visits where contact was not achieved). 40. Expectation 10. The requirement to make repeated efforts to contact customers should be qualified by the addition of words requiring companies to adhere to the requirements of the CCA and the OFT guidance with regard to debt recovery in addition to the other expectations detailed in the guidelines Principle 2:-Companies should provide a reasonable range of payment frequencies and methods, for all customers. The entire range of options should be properly and widely advertised to ensure that customers can select the arrangement which best suits their circumstances. Current Practice 41. We accept the proposed amendments without the need for any additions or comments 42. Expectation 7. The guidelines should refer to the need for companies to make it clear to customers which payment methods are free and which attract a payment fee. Principle 3:-All correspondence sent to customers should be written in non threatening style but should clearly set out the action which the water company will take if the customer fails to make payment or contact the company. 43. Current Practice No comments 44. Expectation 1. This should state that the extract from the code of practice that covers what to do if you are having difficulty paying your bill should be sent to customers at every stage of the account in arrears cycle. 45. Expectation 3. With the technology available, companies have no reason to issue a letter which can apply to both domestic and commercial customers. CCWater would prefer to eliminate the possibility of companies using such a letter

10 as a 'veiled threat of disconnection' by adding an expectation to the guidelines that companies do not issue letters which can apply to each group but have specific relevant literature. 46. Words have been added to give guidance when using void property notices. For additional clarity we suggest rephrasing Notification of disconnection through void property notices should only be used where the company can demonstrate that it has made reasonable attempts to ascertain that the property is in fact unoccupied before the issue of a notice. Void property notices are not a mechanism for managing debt. Principle 4:- When agreeing payment arrangements with customers in debt, the customer s ability to pay should be taken into account. Current Practice 47. It is advisable for customers who are experiencing payment problems to receive independent advice about a reasonable and sustainable level of payment relative to their income. It is important that customers are advised of contact details for a trained debt advisor either nationally through Citizens Advice or the National Debtline or locally through specialist agencies whenever payment amounts and frequencies are under discussion. 48. When dealing with customers who state that they do not wish to follow that course of action companies should then follow the guidance provided by Ofwat. We suggest that the final paragraph of Principle 4 Where the customer has multiple debts is repositioned to the end of paragraph 3. In addition appropriate wording needs to be added which advises that any information provided will not be divulged to any other person or used for any other purpose. 49. Expectations 2, paragraph 2 We suggest for clarity that this is replaced by 'Companies should be able to demonstrate that consideration has been given to whether the customer would benefit from: the installation of a meter; water efficiency measures and that, where relevant, information has been provided about this ; the vulnerable groups tariff or any other company specific tariff, for example a low user tariff. This will provide additional clarity and protection for customers. Principle 5: Customers whose accounts are managed by debt recovery agents, or some other form of billing agent should receive the same level of service and care to those whose accounts remain within the water company.

11 Current practice 50. In addition to debt recovery agents companies also employ tracing agents to identify customers who have moved from their original address. These agents might not be interpreted by companies as either billing or debt recovery agents however it is important that these agents deliver the same standard of service to customers as if they were dealing directly with the company. This principle and current practice should reflect the fact that it covers all agents making customer contact in respect of outstanding accounts. Expectations 51. In the first sentence after Expectations it would be helpful to add or some other form of billing agent after debt collection agents. In addition these expectations should be strengthened by the omission of the word generally' from the introduction. 52. Expectation 1 We suggest replacing to be aware with the agent must operate under the same Code of Practice on Debt Recovery. 53. Expectation 2 We would prefer this to read: To be able to verify on a regular basis Expectation 3 Where a customers' debt has been sold to a debt collection agent, the water company should always make the customer aware of this and also the fact that the water company no longer has control of this debt. This expectation should reflect this. 55. Expectation 5 The additional text proposed is a separate issue to the rest of the text here. The issue of customers requiring special assistance is not just an addition to an unrelated matter and this point should therefore be listed as a separate expectation. 56. Expectation 7 We think where possible should be deleted from the third sentence. 57. Expectation 9 All companies should involve CCWater committees in both the agreement of terms and conditions of any potential schemes whilst they are being negotiated and the production of a leaflet for customers whose charges are collected by Local Authorities detailing the vulnerable group s scheme, meter option, water efficiency etc. 3. Should the guidelines be applied to all indebted customers or focused only on vulnerable indebted customers (section 4)? If the latter, please set out any ideas on how such customers could be distinguished.

12 58. We are not aware of any absolute definitive method of identifying the vulnerable indebted customer and it is therefore essential that these guidelines are applied to all indebted customers. 59. Water companies tell us that it is difficult to identify vulnerable indebted customers; although they are implementing systems which make it more likely that they are able to do so. However the classifications resulting from these systems can be revealed at varying stages of the debt recovery process, not necessarily at the outset so the guidelines should be applied to all indebted customers so that they all receive the same level of service according to their needs as they are known at any particular time. Enquiries CCWater has statutory duties to represent the interests of customers of the water and sewerage companies in England and Wales. We operate through nine committees in England and a committee for Wales. Enquiries about this response and requests for further information should be addressed to: Barbara Leech Consumer Council for Water Eighth Floor Northgate House St Augustine s Way Darlington DL1 1XP Tel: Fax: enquiries@ccwater.org.uk