Ofgem set to crack down on energy brokers

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27 March 2012, Electricity

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Between the industry authorities Ofgem and the Office of Fair Trading lies a grey area in which neither has any particular sway. This has been exploited by a small minority of energy brokers, which have used practices that leave small business customers disadvantaged. Legislation is needed to close the protection gap, but the problem facing the authorities is that the vast majority of firms act in the best interests of their customers, and therefore any new legislation should not have any effect on them.

Ofgem is attempting to solve this problem and prevent unscrupulous brokers from exploiting customers through practices including misrepresenting offers from suppliers, not being clear on the fee or commission that is being charged, or only negotiating with suppliers that offer the broker the best commission. Current proposals center on banning brokers from preventing customers contacting the supplier directly and making accreditation to an Ofgem-backed scheme compulsory.

So far so good, as any legitimate broker would certainly be able to comply with these regulations almost immediately. However, should the legislation go further? The answer to this may lie with the energy suppliers, which have been accused in the past of being silent on the accounts that brokers deliver to them even when it is clear that the customer is not on the right tariff or deal.

Further legislation should target the energy suppliers' role and look at how these companies can act in the best interests of the customer in order to protect them. The legislation should take the form of an industry-wide contract that energy suppliers should adhere to when dealing with the brokers. This would include requesting a letter of authority from the customer the broker is representing, stating that the customer understands the services on offer, and ensuring that an independent assessor is used to verify the amount of energy the customer will likely need before entering into negotiations with the broker.

It is generally agreed throughout the retail energy industry that rogue brokers need to be clamped down on, and Ofgem is now gearing up to provide the backbone to this movement. However, it remains to be seen whether it will only prevail in being a toothless bulldog. If Ofgem fails to come down hard enough, brokers that act dishonestly will simply find ways around these proposals, and continue harming the professional and honest majority in the process.

Source: Datamonitor

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