Energy companies have been criticised for running credit checks on customers which could penalise them unfairly because of their financial credit behaviour.
Watchdog Consumer Focus warned that the increased use of credit checks by energy firms meant that consumer’s payment behaviour was being judged by their financial credit score, which was likely to differ from payment behaviour towards energy bills.
Consumer Focus warned that consumers were likely to prioritise paying essential energy bills in a different way to other forms of credit, which meant that using financial credit data may give an inaccurate picture of a customer’s ability and willingness to pay their energy bills.
This meant energy firms could potentially use information to impose restrictive conditions such as requiring customers to pay a security deposit or use pre-payment meters.
The data could also be used to exclude people with debt problems from the marketing of special offers, meaning they would miss out on the best terms even if they’ve never had a problem paying an energy bill.
Consumer Focus also argued that there were potential problems with Credit Reference Agencies (CRAs) using energy data, chiefly the reliability of energy information.
Dhara Vyas, energy expert at Consumer Focus, said: “Used responsibly credit checks could help stop energy customers going into debt and most people will feel no ill-effects from greater information sharing.
“But without the right checks and balances those with a poor financial credit history could be unfairly penalised, particularly the poorest whose budgets are most stretched. Issues with inaccurate energy data also potentially affect consumers’ applications for mortgages, loans and credit cards.”
Consumer Focus did also say that there could be some potential benefits for customers of this greater sharing of information between energy firms and CRAs. Namely, it could help suppliers to enable customers to take steps to prevent getting into debt difficulties by making informed decisions about the best payment method for them and agreeing affordable debt repayment options.
It could also give customers who don’t have financial credit history, but a good energy credit history, an element to boost their credit reference score.