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Why is the poor cheque payer penalised so much?

Woman with money box

Our latest investigation found you could be paying more than £100 extra for your gas and electricity if you pay by cheque or bank transfer rather than direct debit. That’s £100 to process four cheques!

On average you could expect to pay about £20 to £50 to pay by cheque, in 2004. It’s now around £100. That’s up to five times as much as it was eight years ago, (depending on your supplier).

While I accept processing a cheque requires a little more administration than receiving a direct debit, you’d comfortably assume it doesn’t cost £100 to handle four cheques a year. So what’s going on?

£100 to process four cheques

We asked the major energy suppliers how they justify these charges. They said they have to protect themselves against debt in addition to the processing costs. And some said that our current state of financial affairs means the risk is greater, hence the rise. The thin silver lining was that some said they offer a prompt payment discount.

But this seems cold comfort to the cheque payer – particularly the punctual ones.

Lower energy bills for direct debit payers

In our research in July we found 56% of energy customers paying by direct debit are in credit – by £161 on average. So it’s perhaps not surprising that people aren’t rushing to hand over their bank details for their energy company to automatically deduct their payments.

As it costs companies less to process customers’ payments when they pay by direct debit, we think it’s sensible that some of these savings are passed back in the form of lower bills.

However, the extra costs for those who don’t pay by direct debit should be proportional to the cost.

How do you pay your energy bill and how would you like to see energy companies looking after for customers who don’t pay by direct debit?

It costs £100 extra to pay energy bills by cheque than by direct debit - is that fair?

No - £100 is far too much extra to pay by cheque (77%, 181 Votes)

I'm not sure - cheques cost more to process, but £100 may be too much (18%, 42 Votes)

Yes - £100 is a fair price to pay by cheque (5%, 11 Votes)

Total Voters: 238

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Rather than focussing on cheque vs direct debit, it would be more helpful to compare bank transfer vs direct debit. Once Article 19 of Directive 2011/83/EU on Consumer Rights is enacted in the UK in early 2013, won’t it be illegal for businesses to charge more for receiving a bank transfer than a direct debit? Whilst I can understand reasonable surcharges for paying by cheque, as paper-based payments are inherently costly to administer, there is no justification for incoming bank transfers to be surcharged by the business receiving them.

I reckon that the issue we have been invited to discuss is far more important. Second is the fact that it is not possible (at least with e.on) to pay for what energy you have used, so many people end up in credit. In my case this tends to be around £100 but many have reported much higher credit balances.

I find this very interesting for lots of reasons, and I largely agree with nfh, but most interesting of all is that my current bank (NatWest) and my previous one (Co-op) both advertise the on-line (BACS) payment method as not only instant (“The funds will reach the payee’s account today”) but also ZERO COST to the payee ….. specifically even cheaper than Direct Debit.

Is this false advertising by these two bansk and others? Is it cleverly mis-leading words that I have failed to see-though and misunderstood? Or is it proof, as I’m sure most people will suspect, that the Energy companies are simply fleecing us rotten (again)?

I’d very much like to know what Which? (especially Which? legal) and other readers make of this.

By the way, to answer the question posed in Alice’s intro, I buy by gas and electricity from Ecotricty, I get a dual-fuel discount for doing so, and I pay my bills, which are quarterly, by either on-line (BACS) transfer or, rarely, by cheque. Ecotricty make no additional charge for either of these methods and they don’t offer any discount for Direct Debit either …..they may not be the cheapest supplier but they offer a plain, simple, easy-to-understand, and no hidden surprises range of payment methods, and outstanding customer service, which for me are together worth more than fancy enticements which then get lost within other issues like this.

Why can’t the gas and electricity companies be like the water companies? I pay Thames Water on receipt of the bill by credit card and there’s no surcharge at all, despite Thames Water incurring a small percentage charge for this method. I get airmiles or cashback from my card issuer, unlike fixed monthly direct debit which results in lost interest on credit balances, as wavechange suggests above.

Enjoy it while it lasts because credit card and even debit card surcharges are becoming increasingly common.

The simple answer to the question in your headline is that the utility companies and others can get away with the surcharges they impose under the guise of additional costs. Ofgem should prohibit the practice of different charges dependant on the method of payment, and stipulate that the utility companies only have one charge irrespective of the method of payment.

at best its unethical, at worst its akin to fraud. They have no regard for their customers at all, along with so many organisations today. Its ALL just about the profits. Their treatment for pre-pay meter customers winds me up even more. These meters are common in rental properties and are a choice made by some people on low incomes to allow them to maintain control of an often very restricted income, without getting themselves in debt. These customers are then charged more than the standard rates and not able to benefit from the supposed “special offers”. Why are the less well off penalised in this way, there can be little or no “admin” for this so how is this justified?

Jane says:
19 October 2012

For ‘deregulation’ read ‘lawlessness’. The privately educated sons and daughters of the mafia are now running everything from banks to utility companies. The method of payment should not affect the price we pay for our utilities, and should be a matter for the European Court. Such charges are unfairly skewed towards the less well off and elderly who don’t have computers at home. Ofgem are just a bunch of overpaid cronies and friends of our ruling elite who consider the rest of us to be plebs to be fleeced using every trick in the book. Come the REVOLUTION!!!