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Are the days of debt-hopping numbered?

Are the days of debt-hopping numbered?

With new rules due in October, have we seen an end to energy debt-hopping?

After that shocking winter, Jimmy racked up a whopping Bord Gais bill. With all the other bills coming through the door, and the government reaching into his pocket for even more of his cash, he simply hasn’t been able to clear his arrears yet. Now he hears that Bord Gais is planning to put up his gas by nearly 30% (just in time for next winter), and his electricity is going up next month too.

Our hypothetical friend is far from alone. Between ESB Electric Ireland and Bord Gais there are at least 265,000 customers behind on their bills. Even Airtricity, with their reputation for being rather intolerant of customers that owe them money, have more than 20,000 customers in arrears.

If you listen to the suppliers (and they’ve done a fair amount of moaning), the situation is so bad that they’re losing mountains of money in unpaid bills. Just last year Bord Gias wrote off €26 million and the ESB said goodbye to another €20 million from customers that didn’t pay up.

Switch to dodge big bills

According to the suppliers, debt-hopping is one of the biggest issues behind all this money they re losing. Customers are running up bills, not paying them and when the disconnection notices start coming through the door, they switch, leaving their unpaid bills behind them.

Right now, our hypothetical friend Jimmy could feasibly work his way through all four gas suppliers without paying any of his bills. All he has to do is switch when the arrears pile up and the new supplier would be none the wiser.

The reason is that until now customers could switch and the new suppliers were not allowed to know anything about them – not whether they paid their bills sometimes, all the time or never. Or if they owned a few quid, thousands or nothing.

So something had to be done said the suppliers in unison. Then they lobbied the regulator, and something was done. Sort of…

Debt Flagging

The energy regulator has said they would allow suppliers tell each other if customers were behind on their bills when they wanted to switch. The new supplier could then decide whether they wanted to take on in-debt customers or not. It will be called debt flagging.

It’ll work like this. By October 1, if you go to switch suppliers and you’re more than 42 days and €250 behind, you’ll be flagged. This is all the new supplier will know about you. They will not be told the actual size of your debt of how long it’s been since you’ve paid anything, or whether you’re normally quite good at paying your bills. You’ll just be flagged – you’re now someone who’s more than 42 days and €250 behind and the new supplier has to decide whether they want you or not.

And this is where the whole business of debt-hopping becomes rather murky and interesting.

With so many people behind on their bills, so much switching going on (we're the biggest energy switchers in the world) and so little information being made available, how on earth is a supplier to decide which customers they want to take and which ones they don’t?

The suppliers must be scratching their heads. They asked for something to help them deal with the problem of debt-hopping and now they have it, but it seems to raise more questions than it provides answers…

Do you say no to all customers that come through with a debt flag?
Do you just continue to take everyone? 
Do you blindly reject say 25% of flagged customers and hope for the best?

There doesn’t seem to be enough information to make a decision on which customers are good and which are debt-hopping. After our last horrendous winter, thousands and thousands of normally good customers found themselves behind on their bills. Especially their gas bills. And it’s taken these people time to pay off their arrears. I’d count myself as one. In February, I got the biggest energy bill I’ve ever received and I was simply unable to pay it all at once.

The suppliers also know that there are a very large number of customers that don’t pay their bill until they get the next one. Bills come every two months so that puts this group permanently over the time limit and probably over the cash limit. 

So here’s what I think will happen in October… For the most part, flagged customers will be accepted when they switch but they’ll be treated quite differently to un-flagged customers.

Flagged customers may be asked for deposits – big ones. Suppliers may only accept flagged customers that pay by direct debit. And most importantly, flagged customers will find that their new supplier will come down hard and fast on missed payments. Just like a certain UK owned supplier does now.

For most customers though, the new rules will most likely have little impact and suppliers will probably carry on taking most switches. However, it’s best for consumers to keep their arrears under €250 just in case, especially now that prices are going up.

The debt flagging rules have been set up this way because the regulator wants help fight debt-hopping, but they do not want to slow down switching. So if a supplier were to suddenly decide not to take any flagged customers, it would have a huge impact on switching numbers and the regulator would have to consider reversing the rules.

I think the regulator has it mostly right though. The only things that will keep prices down in a deregulated market are competition and a willingness to switch. Without the regulator setting prices for us, it’s up to us to make sure we get the best deals for ourselves.

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What the new rules say:

The Commission for Energy Regulation says that the flag is there to help restrict the practice of deliberate debt hopping by customers.

You will be flagged if you are more than 42 days and €250 behind.

If you get your gas and electricity from the same supplier and just your gas is behind, the supplier cannot flag your electricity.

Outstanding deposits are not to be taken into account when determining whether a customer has reached the limit or not i.e. if your supplier wants a deposit and you haven’t paid it and you go to switch, they can’t flag you.

 
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