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Solution Loans Personal Finance Blog

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Lisa Kleiman

July 27, 2016 03:56:58 PM

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A Little About Us

Why are some people better at saving money? Could your pension be at risk? How to kick start your business with a guarantor loan? Find out the answers to these questions and more from the independent loan broker Solution Loans, with lots of money saving tips and expert financial advice on a range of issues, from family budget travel to cheap home improvements and more.

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What happens if my energy supplier goes bust?

As energy costs have risen in the UK we are increasingly being advised to continually switch energy suppliers to avoid the worst of the price rises. However, since November 2016, nearly 20 small suppliers have gone bust or left the The post What happens if my energy supplier goes bust? appeared first on Solution...

As energy costs have risen in the UK we are increasingly being advised to continually switch energy suppliers to avoid the worst of the price rises. However, since November 2016, nearly 20 small suppliers have gone bust or left the market and this has made many consumers nervous. So, should you continue to switch – especially away from the big names in the industry – and what happens if the energy supplier you’re with goes out of business?
utility and energy companies

Reinventing the market

The energy supply market is one that has long been dominated by the Big Six (British Gas, EDF Energy, E.ON, Npower, Scottish Power, and SSE). However, over the last decade, we have begun to see many more competitors entering the market. These new businesses are often innovative and small, seeking to find new ways to deliver energy, frequently in a way that is cheaper or more efficient for consumers. Eversmart, for example, allowed customers to pay for a year’s gas and electricity usage up-front in order to secure the cheapest rates. However, despite this innovative thinking, Eversmart went under and it’s not the only new energy supplier to have done so in recent years.

Why do energy suppliers go bust?

Each situation is different and there could be any number of reasons why an energy supplier ends up being forced out of the market. Experts highlight the uncertainty of Brexit as one of the major issues, as well as high wholesale prices, the Winter Price Cap and a number of other unexpected costs. Some suppliers may also simply be disappointing customers, many of whom have much higher expectations in terms of energy delivery and value for money than used to be the case.

What happens if my energy supplier fails?

It’s not the end of the world for a customer if an energy supplier goes out of business. Ofgem is the energy industry regulator and will step in where a supplier has gone out of business. It will protect any existing balance that you have on your account with the supplier and also ensure that your home continues to have an energy supply. Ofgem will then find another supplier for the energy needs of any customers who have been affected. It does this not by simply selecting a supplier but giving them the opportunity to bid for customers so that you get the best possible deal on your new energy contract.

FAQs if your energy supplier goes bust

Do I have to stay with the new energy supplier? No, you’re not locked into a deal that you didn’t personally choose and you can leave at any time with no exit fees to pay.

Can I switch to a supplier of my choice straight away? Ofgem recommends waiting until the new supplier has been appointed and gets in contact with you – it will be much easier to then switch to the supplier of your choice after that point.

Do I have to take action to switch to the new supplier? Ofgem will handle the transition to the new supplier for you and you don’t need to do anything.

Am I likely to experience a disruption in terms of my energy supply? No, everything should remain the same in terms of customer experience.

What happens if I have a prepayment meter? You can keep using this in the same way as you were before until a new payment device arrives.

What tariff will I get with the new supplier? In this situation, customers are usually moved onto the ‘deemed tariff,’ which is designed to match the rate you were on previously. However, if your bills do go up you can leave and find a cheaper supplier.

Case Study: Toto Energy

Ceased trading: October 2019

Number of customers: 134,000

When Toto Energy went under in late 2019 Ofgem released a statement reassuring the supplier’s customers that there was a safety net. It said credit balances were protected by the regulator and prepayment meters could be topped up as normal. It provided two key pieces of advice to customers: 1) take a meter reading as soon as possible so as to provide this to the new supplier and 2) wait until the supplier chosen by Ofgem makes contact before attempting to switch to a new supplier.

Although smaller energy suppliers have a higher chance of going bust their customers are completely protected by Ofgem. These new businesses represent an important tool for continuing to put pressure on the Big Six energy businesses to be more competitive and innovative. Customers who support them are helping to make the energy market more diverse and less expensive for everyone.

What does the FCA research say?

The FCA found that six million motor and home insurance policyholders are being overcharged by insurance companies by around £200 a year – each. According to the regulator, this is the result of the “loyalty penalty,” whereby the customers that remain loyal to insurance companies are not being offered the best deals. However, the regulator’s negative assessment of the insurance industry goes further than highlighting how insurance companies aren’t giving loyal customers the best deals. It also found that the sector is actually targeting those they consider to be the most loyal with the biggest price increases because they are the least likely to switch. There are also many ways in which the insurance industry will try to put up obstacles to customers leaving for another, cheaper provider, for example by using automatic policy renewal practices. The spotlight being shone on the industry by the FCA comes in the wake of a significant rise in customer complaints about the insurance sector – complaints about renewal hikes, for example, increased by two thirds in just one year.

Who is being affected by the increases?

Recent examples of those who have been hit by the premium rip-offs have been published in the mainstream media. They include:

A customer who said hiked his home insurance premium rose from £313 to £1,119 this year.
A 97-year-old customer of Lloyds Bank being charged £1,000 for a home insurance policy that was available for £247 if bought online.
A couple in their 90s who were facing a 20% increase on home insurance, which would see them paying £579 a year, as opposed to the £108 that the policy was available for online.

Elderly and low-income groups were identified by the FCA as the most likely to be hit by insurance price rises. Two years ago the FCA introduced the practice of requiring insurers to publish the premium from the previous year when sending out a renewal letter to try and stop this happening. However, there is still more that could be done, for example requiring providers to automatically switch a consumer to the cheapest deal that is most appropriate for them.

How to avoid the insurance rip-off

Make sure you take the time to compare your options. Often, it’s only when you start looking at the deals that are available elsewhere that you can see how much less you could be paying. Price comparison sites are the most obvious resource for this but bear in mind that they don’t include every available option.
You don’t have to use a price comparison site. There are other ways to get a good idea of what’s available to you in terms of insurance options. For example, you could deal with an insurance broker or look at non-insurance company providers, such as banks or supermarkets. You can also simply research policies from insurance providers recommended by family and friends or those positively reviewed online.
Be specific about what you need. If you know exactly what type of policy you require it will make it much easier to make comparisons and find a cheaper alternative.
Take steps to reduce the cost of your premiums. For example, if you want to pay less for home insurance then you can look at increasing the security of your property or build up your no claims discount for a couple of years. To minimise the cost of car insurance, opt for a make and model from a low insurance group when you next buy a car or take steps to ensure the vehicle is more secure, for example by fitting an immobiliser.
Pay annually. Remember that if you’re able to pay for your insurance annually, as opposed to on a monthly basis, you are always going to be able to get the insurance for a lower price.

Insurance may be essential but that doesn’t mean that you have to be caught out by insurance premium rip-offs.

What type of student loan have you got?

This is the first essential question. Depending on when you went to university you will have a different type of loan and alternative rates of interest and repayment might apply.

Pre-1998 student loans. The interest rate is set each year based on the rate of Retail Prices Index (RPI) inflation – as of September 2019, it was 2.4%. Repayment is a requirement for anyone earning more than £32,347 a year.
1998 – 2011 student loans. These are known as ‘Plan 1’ Loans and the interest rate is the lower of the rate of inflation or the Bank of England base rate, plus 1%. Currently, it is 1.75%. As soon as you earn £18,935 a year (£19,390 from 6 April 2020) you have to repay 9% of what you earn above the threshold e.g. repayment on a £20k salary would currently be £96 a year.
2012 and beyond student loans. These are ‘Plan 2’ Loans and have a much higher interest rate – 5.4% (reduced from 6.3% as of September 2019). Repayment is required at 9% of what you earn above £25,725.

Are there any benefits to repaying your student loan?

First of all, it’s worth noting that most student loan repayments will be automatically deducted from your salary once you go over the specific threshold for your type of loan. So, you will not have any choice about making the basic repayments. What many students are currently struggling with is the question of whether they should overpay on a loan – or pay it off completely if they have the cash. The short answer to that is unless you are earning more than £50,000 a year, you’re otherwise debt-free and you’re not likely to want to get on the housing ladder any time soon there may not be any financial benefit to you in committing to total repayment. Here’s why:

If you’re on Plan 1 or Plan 2 then what you owe doesn’t impact on your repayment size – this is based on what you earn. Your student loan could be £5,000, £50,000 or £500,000 (unlikely but just for demonstration purposes) and you would still be making the same repayments – 9% of whatever you earn over the relevant threshold.
Depending on the type of loan you might be paying little, or nothing, to just sit on it. So, for Plan 1 the cost of borrowing is the Bank of England base rate plus 1% or just the rate of inflation – whichever is lowest. This means that, effectively, the loan costs nothing to borrow because you’re only repaying the rate of inflation. For Plan 2 loans the rate is higher but still lower than the interest rates of most high street lenders.
The loan will eventually be wiped. Even if you haven’t repaid anything at all, your debt will just disappear. Anyone graduating before 2005/2006 will have their loan wiped at 65. For post-2006 graduates, it’s 25 years from the first April after graduation. For Plan 2 loans this happens in April, 30 years after you graduated. According to the Institute For Fiscal Studies, 83% of English student loan holders won’t clear their debt within 30 years and so will have it wiped.

What should you do instead?

Rather than trying to clear such low-interest debt that is going to disappear at some point anyway, it makes sense for many people to invest extra cash elsewhere. For example, you might have credit cards or other debts from your student days that are smaller but have higher interest rates. So clearing other debt should be more of a priority than overpaying on student loans. Putting money aside into savings can also be more constructive than sending it to your student loans lender. If you’re lucky you might find a savings interest rate that is higher than what you’re paying for student loans. But you can also create some security by putting that additional money aside for a rainy day.

For many people, working to overpay or fully repay student loans as soon as possible just to be debt-free just isn’t financially smart. Rather than worrying about having that debt hanging over you, it may well make sense to use the extra money in a different way to help secure your financial future.

More info: Student loans vs personal loans

Why is there a smart meter delay?

At the time the deadline was set energy providers suggested that it was not realistic. Most felt that that the technology required was just not ready. Plus, many providers said that they simply wouldn’t have the time or resources to get smart meters into the requisite number of homes by 2020. The new deadline means that they now have until the end of 2024 to install smart meters in at least 85% of customers’ homes.

Partly due to problems surrounding the technology itself, there have been a number of issues that have arisen with those smart meters that have already been installed. For example, many consumers found that the smart meters they were given only worked if they stayed with the same supplier and were useless if they switched. Some smart meters only work sporadically and others seem to be affected by changing environments, such as weather conditions.

As of June 2019, around 15 million smart and advanced meters were up and running in the UK. The overall goal for installation is 53 million smart meters in both homes and small businesses – now by 2024.

What are the benefits of smart meters?

A smart meter is basically the same as a traditional electric or gas meter used to monitor energy consumption. The big difference is that the information it collects is sent straight to the energy supplier. Consumers are also able to monitor their own energy usage via the data that appears on the smart meter screen.

Readings are automatic and consumers don’t have to go through the process of repeatedly supplying this information to energy providers
Smart meters signal an end to estimated readings, which have caused all sorts of issues for consumers in the past, from overpaying for energy to underpaying and then being faced with large catch-up bills
Billing should be easier and more accurate as meter readings are automatic
A range of other changes was offered that promised more flexibility and benefits for consumers
According to the National Audit Office, consumers can make small annual savings of £11 with smart meters. However, the main savings are likely to come from packages offered by energy suppliers that provide consumers with discounts for working with their smart meters to use energy at specific times
Consumers have the opportunity to change the way that they use energy based on the information that they can see on the smart meter
Smart meters have a big role to play in enabling the UK to potentially meet its target of net-zero carbon emissions by 2050. If everyone in the country started using less energy as a result of smart meters then the drop in emissions would be substantial

Why might the delay be beneficial?

It will give energy companies a chance to fix the technical problems that have plagued smart meters and to find a model that works for everyone. It could also help to avoid a swathe of customer service complaints. In order to meet the rollout deadline, many energy companies have been repeatedly and aggressively targeting consumers with smart meter communications. This should ease off now that the deadline has been moved.

Does every home have to have a smart meter?

Although energy suppliers are under an obligation to ensure that every home is offered a smart meter, there is no requirement for consumers to accept one. There is no upfront cost to consumers in having a smart meter but no obligation either. Consumers can choose to have a smart meter when offered, to request one from a supplier if not yet offered, or simply to opt to have one installed at a later date. That applies to homeowners as well as to tenants who pay their energy bills directly to a supplier, as opposed to via a landlord.

Although this is arguably the worst time for a delay to the smart meter rollout – given that Brexit is on the horizon, winter is coming and many individuals are struggling financially, it may turn out to have had advantages. Smart meters that work and actually provide promised benefits for consumers – as opposed to making life more difficult – will be far more beneficial even if they arrive a little late.

What is a loan shark?

Illegal money lenders (loan sharks) are identifiable in a number of different ways. For example, they might be offering a cash loan that doesn’t come with any paperwork or records. Frequently, the interest rates offered by illegal lenders are high and can change without warning, and there may be no transparency over how much is actually owed. Plus, loan sharks often resort to threats and taking possession of a borrower’s valuables without any right to do so. In 2010, more than 300,000 households in the UK were in debt to illegal money lenders. It was because of the growth in the illegal lending industry that the IMLT was established. So far, the team has provided support for more than 29,000 people and written off over £74.9 million worth of illegal debt.

Why is the Illegal Money Lending Team necessary?

While loan sharks may initially appear to be offering a solution to financial problems they are not regulated and frequently resort to intimidation and unfair practices. Many people borrow small amounts from an illegal money lender but find that they owe vast sums as interest escalates and random fees and charges are applied. Repayment can be requested at random and violence, or even demanding sexual favours, is not unknown when it comes to forcing repayments. As a result, research has found that victims of loan sharks frequently go without food or heating or skip payments on rent or mortgages just so that they can meet the demands that an illegal money lender has made. Many victims just don’t feel that they can fight back against loan sharks because they are powerlessness. The IMLT was established to support those who have fallen victim to loan sharks and to ensure that illegal money lenders don’t get off scot-free.

Examples of the team’s success

One loan shark who had been in business since 2015 was charging rates of up to 50% interest. For example, one borrower found themselves paying £15,310 to repay an £8,500 loan. Thanks to the work of the IMLT the loan shark has now been jailed for nine months and is obliged to make a payment of £61,100 under the Proceeds of Crime Act or spend a further 12 months in prison.
Another illegal money lender was sentenced to 22 months in prison after 100 loan records were discovered at his home. He is required to make a £100,000 payment to avoid more jail time. Since his business began in 2011 he had received more than £150,000 in payments and had made a significant profit from charging interest rates of 40% or more.
One loan shark who had been operating since 2012 was charging interest rates to of 30% to around 31 clients who owed him almost £40,000. He was jailed for 30 months as a result of his illegal activities.

How does the team work?

Loan sharks are often particularly insistent on consumers making repayments because an illegal debt cannot be enforced by law. However, this has also meant the IMLT has been able to write off a large number of these debts – some £75 million in total – and has been able to provide support for 29,000 people who were struggling as a result. The team has also been able to carry out prosecutions for illegal activity. This has included prosecutions for illegal money lending and also for other offences, including wounding, assault and rape.

Illegal money lenders prey on the most vulnerable people and communities, often starting out friendly and helpful and become increasingly intimidating and violent. It’s an industry that can do a lot of damage despite the fact that the loans aren’t actually legally enforceable. What the IMLT has done is to shine a light on the problems surrounding loan sharks, to provide support to the victims and to start holding people accountable.

If you’ve been approached by a loan shark you can report them here. For your own safety, you should never use an unregulated provider of credit. Make sure that you only use a credit broker or lender who is regulated by the Financial Conduct Authority, as Solution Loans is.

Data the agencies DO have

When a lender accesses your credit file they won’t see whatever score that Credit Reference Agency has compiled about you. What they will see is a range of different pieces of data that will be used to build up a picture of your creditworthiness. It’s worth noting that the maximum length of time data is likely to stay on your credit file is six years (e.g. for late payments) – most of it (e.g. other searches carried out) will disappear more quickly. This information includes:

Information that can be used to personally identify you. One of the key steps of a credit check is verifying who you actually are. So, Credit Reference Agencies collect a wealth of data that can be used to do this. It may include your current and past names, a list of your past addresses and your existing address, as well as whether your name is on the electoral roll (i.e. are you registered to vote?).
Anything that is a matter of public record. That could be a County Court Judgement, bankruptcy or house repossession, for example.
How you’ve handled credit in the past. Your credit file will contain details about credit that you’ve had in the past, whether that’s a mortgage or a personal loan, credit card or store cards. Lenders will be able to see how you handled that credit i.e. whether you made repayments on time or there were issues.
Your current situation with credit. Credit Reference Agencies also compile information on your existing credit agreements, how much you’ve borrowed and whether you’re up to date with payments.
Who else has looked at your credit file? Credit Reference Agencies keep a record of the lenders who have carried out a search of your credit file and the type of search that has been done.
Any financial associations that you have. This could be someone you once had a joint mortgage with or an ex-housemate that you shared the bills with.

Data the agencies DON’T have

Employment history
How much you earn
Criminal convictions
Savings
Current accounts
Details of your student loans
Any information about medical history
Council tax payments
Data that would indicate religion, sexual preferences etc

Need more detail? Read our “Ultimate Guide to Improving Your Credit Score”

Where does this data come from?

Anyone you have a credit relationship with. Lenders etc don’t have to send this information to Credit Reference Agencies but most do because it benefits their industry (and their interests) to have it on record in this way. Banks, mortgage lenders, credit card companies and credit unions are just some of the businesses that will regularly provide updates to Credit Reference Agencies on your current credit position. Others, such as lawyers and accountants or insurance companies, may only do so if you default on payments.
A debt collection agency. If you owe money on an outstanding debt that you haven’t paid a debt collection agency may send this information to a Credit Reference Agency as a way of trying to put more pressure on you to clear the debt.
Information from credit providers. Every time you make an application for credit all the data in that application will end up in the files of Credit Reference Agencies.
Public records. Most agencies will invest time and effort trawling through public records looking for information about consumers with which to update their files. There will be information here that is key for lenders, for example with respect to bankruptcy or entering into an Individual Voluntary Arrangement.

It’s important to understand what kind of data is in your credit file, as well as where this has come from. Most of the time it is up to consumers to regularly check their credit history and to ensure that the information provided by the sources that Credit Reference Agencies use is correct. So, if you want to avoid having a credit problem then it’s key to ensure you know what’s in your credit file – and that you check it on a regular basis.

How to Manage Your Credit Rating

This 4-minute video explains in more depth how you can go about actively managing your credit file to ensure it reflects reality – this includes how to remove incorrect data held about you that might adversely affect your ability to get credit in the future:

The post How do credit agencies get their data about you? appeared first on Solution Loans.

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