Updated Ofwat guidance to the water companies in England and Wales covering procedures for dealing with domestic customers in debt will enable them to make use of debt collection agencies which are not licensed by the Financial Conduct Authority - the FCA only regulates consumer credit debts.

 The water industry regulator first issued guidance in April 1992 – the latest version published in 2014 was updated to take account of changes in legislation, new developments in data-sharing and reflect how Ofwat regulates information provision. It also included minor revisions to avoid any misunderstanding of Ofwat’s views regarding companies’ use of in-house debt collection agencies.

The latest detailed guidance sets out five principles Ofwat expects the water companies to adhere to in collecting household debt. The new guidelines have principally been updated to acknowledge that the Financial Conduct Authority (FCA) only regulates consumer credit debts and that water debt is not regulated by the FCA. Until now the guidance has not allowed the water companies to use non-FCA-licensed debt debt collection agencies.

 Principle 5 of the new guidance sets out Ofwat’s expectations of the water companies who employ third parties to recover water debt on their behalf and states:

“Customers whose accounts are managed by debt recovery agents or some other form of billing agent should wherever practicable receive the same level of service and care as those whose accounts remain with the water company. “

“The potential consequences of having their debt managed by a third party should be no more severe than if the service was provided directly by the company.”

 Sale of debt to third party only to be used when all other recovery activities have been attempted

 The guidance says that debt collection agents should work under a service agreement governing the level of service customers will receive and setting out the agent’s relationship with the water company. The water companies should make sure that they engage a reputable company to engage in debt collection and who abides by industry codes of practice such as that of the Credit Services Association and the guidance on debt collection issued by the Financial Conduct Authority in its handbook.

The Handbook states that agents should be accountable for the actions of third parties who in turn must adhere to the debt collection guidance and that if consumer credit license holders choose to do business or continue to do business with third parties engaged in questionable behaviour, their own fitness will also be called into question.

The Ofwat guidelines say that companies choosing to sell debt to a third party should only do so when all other debt recovery activities have been attempted. Companies should ensure that they only sell debt to a reputable agent who abides by industry codes of practice such as that of the Credit Services Association and the guidance on debt collection issued by the Financial Conduct Authority in its handbook.

 Standards Ofwat generally expects the water companies to adhere to include the following:

 1. It is expected that companies will have systems and processes in place to ensure that its contractors are acting in compliance with its Code of Practice and meet the standards set out in the Financial Conduct Authority handbook.

 2. Be able to verify on a regular basis that customers whose debt is managed by a debt collection agency are sensitively dealt with through a robust audit process.

This may include regular reports from the agent on the progress of customers’ accounts and payments. To satisfy themselves that their customers are receiving the appropriate level of service, water companies are expected to hold copies of standard correspondence and literature sent by debt collection agents and make sure that these conform to the standards expected of the water companies themselves.

3. Make sure that customers whose accounts have been passed to debt collection agents are kept informed of the action. Customers should not find themselves in a position where it is harder to agree payments than if they were dealing direct with the water company. The debt collection agent should offer the same range of payment options as the company wherever it is practical to do so.

4. Retain access to the management of the customer’s account, should the need arise, as the debtor will typically remain the customer of the water company. Regular and effective communication systems should be in place between the company and agent to share information regarding payments made or other activity on the account when necessary.

5. Make sure that customers who are unhappy with the way the agent has dealt with them are able to raise their concerns directly with the water company.

Ofwat also expects the water companies who use debt collection agencies to show customer watchdog CCWater that customers whose accounts have been placed with agents are not receiving a lower level of service than customers whose accounts remain with the water company.

 Care needed to ensure customers do not feel harassed by use of multiple contact methods

Ofwat’s guidance on Principle 1, which says that companies should be proactive in attempting to contact customers who fall into debt as early as possible and at all stages of the debt management process, makes some interesting points about the approaches used by the water firms to recover the debts, stating:

“Water company experience suggests that in some cases innovative approaches to debt recovery can be effective as they are not expected by the customer. Once customers have become used to a set procedure, it becomes less effective and they are more likely to ignore reminders or letters. Customers are more likely to open a letter they receive outside of the usual recovery timetable, or to respond to an unexpected telephone call or visit. However, other evidence shows that in some cases customers respond well to more established forms of communication as these are found to be less threatening.”

The regulator has also suggested that companies should also consider whether they can use new technology alongside more traditional methods in order to maximise the opportunities for contacting customers. This could include the use of telemessages, faxes, e-mails or mobile phone text message facilities. However, Ofwat says that care is needed to make sure that customers do not feel harassed by companies who employ a multitude of methods to make contact with the customer and that the timing, frequency and manner of contacts should not be oppressive, misleading or threatening,

Click here to download the guidance in full.