Debt in a time of COVID

 Who reads Terms and Conditions? Not many of us, we usually skip over them on the way to the “deal”. But having some time on my hands, I read an email I received from my energy supplier (Bulb) which said they were changing theirs. They said:

“We'll always communicate clearly with members and try to help them if they fall into debt. If we need to, we'll be able to charge for some debt recovery costs so we can keep prices low for all our members. This could include charging interest on late payments, missed payment fees, debt collection fees, prepay meter installation fees and legal fees. We've also made it clearer that we expect members to not be in debt and we may ask you for a security deposit if you are in debt.”

I like low prices, but not at any cost.  I used to be Chief Executive of StepChange Debt Charity where I saw at first hand the devastating impact of problem debt on people’s lives, e.g. poor mental and physical health. The impact is not just on the individual in debt, it affects their families too. So equating actions which pile further suffering on the heads of people in debt, with keeping prices low for people like me who are comfortably well off, was troubling.

I am not na?ve. Companies are in business to make money, and indeed my pension fund depends on firms making a profit. Firms do not like customers from whom they do not make a profit.  Energy and water companies are in a difficult position compared with other companies who can simply walk away from a customer – energy and water are essential for normal life and disconnection could have very dire consequences – and indeed water companies do not disconnect. It is also fair to say that if there are no negative consequences for not paying your energy bill, some might see no reason to pay their bill even where they could afford to.

So, I am not saying that energy companies should not have the right or the ability to recover debt. My concern is about how it is done. Collect the money which is owned by all means, but it is not right to pile extra debt on the heads of people already struggling by charging interest on late payments, missed payment fees, debt collection fees, prepay meter installation fees and legal fees.  

Debt recovery is a real cost to firms and it has to be met, but it should be “socialised”, i.e. borne by the wider customer base.  I know it is possible to imagine a scenario where the wider population, including those on low incomes, might end up paying the costs of recovering a debt from a person who was very able to pay their debts in the first place. But I think that would be a rare occurrence.  Compare that small risk with the positives of not placing extra, possibly crippling, burdens on those really suffering with problem debt.

It is already clear that Covid will lead to a Tsunami of personal debt and all the suffering and damage that will bring. Now more than ever we need to put in place measures to protect vulnerable people, and more of us will be vulnerable soon. Energy firms exist in a competitive market place and the regulator, OfGem, should consider how it could develop its rules around vulnerability to provide a level playing field and remove the fear of the impact on competitiveness of being more supportive of vulnerable people.

Bulb will no doubt claim they are just acting like their competitors. However, I would urge them to not to follow the herd, but to differentiate themselves from the competition by not treating people in debt in the way that their new terms and conditions allows. If they did, it would make me more likely to choose Bulb, and even pay a bit more. 

It is possible to overstate the impact of Covid on how we live our lives after the crisis has passed but I think there is a reasonable chance that in the future consumers will prefer firms that behave in a more responsible, compassionate manner.  Judging which companies are behaving in the way which deserves out support is not easy.  We are wary of companies making claims that are not borne out in reality, “greenwash”. We need real transparency about how a company actually behaves and it would be good for consumer organisations such as Which to rate companies in this respect. Contract terms and conditions, along with how they are used in practice, are important and I would like to see companies such as Bulb to set an example.