Vulnerable households turn to payday loans to recharge prepaid energy meters

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“Treated Like Second-Class Citizens”: How Vulnerable Households Turn to Payday Loans to Recharge Their Prepaid Energy Meters

Worrying: Labor say some families on prepaid meters are cut off “by the back door”

Vulnerable households who pay off their energy debts on prepayment meters are turning to payday loans to meet their payments, This is Money has learned.

Up to 4.3 million households pay for their energy using a prepayment meter, which requires them to top up their energy in stores or over the phone before using it.

Many have been put on prepayment meters after going into debt with their energy supplier.

The meters are supposed to help households to repay their debt, by taking a sum for each recharge.

But some households find the cost of paying for energy and paying off their energy debt so high that they turn to high-interest loans, leading to a worrying debt spiral.

Candice White had to pawn her jewelry, took out payday loans, and borrowed money from friends and family when she couldn’t afford to top up her prepayment meter, which was programmed to take money to pay off an old energy debt.

“When I got sick and had to give up my job, I fell behind with my energy bills,” she says. “I was put on a prepayment meter, but during the winter months I couldn’t find enough money to top it up as it was taking money to pay off the debt as well as for my consumption. of energy. “

“It turned into a downward spiral. “

Like many on prepaid meters, Candice regularly went into her emergency supply – a reserve that kicks in when your credit runs out to help you until you can top up.

“But when I refueled it first paid off the emergency supply money, then it paid off the debt,” she said. “On £ 10 refill, I would wash a few plates, take a bath and off you go.”

Paying by prepayment meter rather than direct debit already comes at a steep price. According to government figures this adds an average of £ 105 per year to energy bills, although for some the extra cost can go as high as £ 300.

This is an additional financial burden that those who use prepayment meters can hardly afford: those who pay in this way are probably the lowest-income households.

The way the payment is taken is another kick in the teeth. The same amount of debt is taken from meter payments regardless of the time of year.

Households that pay by direct debit spread the cost of their energy evenly over the year, so there are no unpleasant surprises in the winter and lighter bills in the warmer months.

But there is no option to stagger bills for those who use prepaid meters. When it’s cold, you pay more – and the amount of debt you’re required to pay off stays the same all year round.

Hard time: Candice discovered that she had little gas left after she paid off her debt portion and for emergency supplies

Hard time: Candice discovered that she had little gas left after she paid off her debt portion and for emergency supplies

Households on prepayment meters with significant debt are also unable to shop around and switch to a cheaper supplier, pushing up bills even more.

Rachel Taylor and her husband received a gas bill of over £ 500 six years ago. They switched to a prepayment meter to help pay off the debt and still pay me back.

“One winter my husband and I had to stay with my mother-in-law because we couldn’t afford to buy gasoline on the meter,” she said. “Since then I have had a child with severe autism and he is on Disability Living Allowance so our situation is a little better, but I still put £ 30 a week on gas and there is none. always has more. “

Labor figures suggest that many prepayment customers like Rachel are disconnected “through the back door” because they cannot afford to top up.

Npower and EDF both wait 90 days before contacting households that have not recharged their meters, according to Labor research.

Npower had more than 23,000 customers who had not recharged their meters for at least 30 days last year, while EDF had more than 222,000 customers who had not recharged for more than a month, although its figures do not exclude vacant homes.

Gillian Guy, chief executive of the national charity Citizens Advice, accused energy companies of treating prepaid customers “like second-class citizens.”

“It is virtually impossible to get a good deal on a prepaid meter because there are very few tariffs and they tend to be expensive, making it difficult for people to cut their energy bills while still keeping costs. lights on, ”she said. “We’re seeing people cut themselves off basically because they can’t afford to recharge their meter, which means they’re without lights, heaters, or cooking equipment.

Switched: Rachel Taylor was moved to a prepaid meter when she and her husband received a gas bill of over £ 500 six years ago

Switched: Rachel Taylor was moved to a prepaid meter when she and her husband received a gas bill of over £ 500 six years ago

“People walk into offices on edge after turning to payday lenders to try and meet basic costs like food, energy and rent. Often times, they find themselves in an even worse situation as interest increases and lenders increase the pressure to repay.

“Energy companies need to do more to help prepaid customers lower their bills. More inventive payment methods and a wider choice of cheaper rates would give customers more control. ‘

Another criticism of paying debts using prepayment meters is that they do not take into account the financial situation of customers.

“The method of collecting debts on these meters is odious,” says Louise Yates, business development manager for Cleardebt, Timperley. Cheshire. “All lenders, credit card providers, catalog companies and even payday loan companies are concerned about a debtor’s ability to pay off debt when they are told the customer is in trouble.

“All of these companies, either directly or through a third-party debt counselor, perform a debt affordability check to determine what the debtor can afford to repay after their living expenses. Not the energy companies – it seems they pick a number in the air and apply it as a weekly charge on the meter. This means that the debtor must first pay before they can get electricity or heat.

Carolyn Kelly was unable to change electricity supplier as she had unpaid debt which had climbed to £ 4,000.

Unbeknownst to her, her supplier replaced her with a prepaid meter, which charged her £ 16.87 per week before she even had electricity.

Spiral energy bill: Carolyn Kelly was unable to change electricity supplier due to overdue payment

Spiral energy bill: Carolyn Kelly was unable to change electricity supplier due to overdue payment

Even though she was raising six children, she sometimes had to do without electricity because she could not afford it.

It took ClearDebt intervention before she finally moved on to a sustainable prepayment plan, and she is now working on debt repayment.

The prepayment meter warning comes as a new report today reveals that more than one million families are grappling with “problem” debt, with nearly three million additional households containing children at home. charge on the verge of falling into financial difficulty.

Many families are in “extremely precarious” financial circumstances, leading them to take out loans to pay for necessities, said the Children’s Society and the StepChange charity.

The stress of keeping up with repayments leads to arguments, emotional distress in children and cuts in essentials, charities said.

A survey for the report found that “problem” debt – defined as an overdue of at least one bill or a household credit commitment – currently affects nearly one in five households, or 18% of households. with children in UK.

On average, those households owe £ 3,437, or around £ 4.8 billion, to creditors and the government, research shows.

The results stand at 1.4 million families across the UK, containing 2.4 million dependent children in “problem” debt, the charities said.

A spokesperson for Energy UK, the trade body that represents the energy sector, said: “Anyone worried about paying for their electricity or gas should immediately contact their supplier to discuss the best payment options – even if you are on a prepaid meter – and they will do their best to help you.

“They should also check whether another energy supplier offers a tariff better suited to their needs. It’s easier than ever to switch to energy companies providing clearer information for easier comparison and choice. Customers in debt with prepayment meters can switch providers, transferring the debt, even if they owe up to £ 500. For more information see: www.energy-uk.org.uk/switch.

“There is a lot of help available to vulnerable clients, including access to trust funds and the priority service registry. People worried about their bills can also call the Home Heat Helpline on 0800 33 66 99 for free, unbiased advice on what they are entitled to.

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