Why should energy and water utilities companies share data with Credit Reference Agencies?

A survey by Which^[1] demonstrates the extent to which CRAs are used to inform traditional lending decisions, with the vast majority of lenders using at least one CRA and 50% using two (for assessment of loans, mortgages, current accounts and credit cards). Comparable information from other industries isn’t available. Though, from our experience and publicly available information, almost all telecommunication providers share and use CRA data and most share data with more than one bureau.

After gaining approval from the Information Commissioner’s Office (ICO), the first utility companies began sharing details of customers who had defaulted on their bills just over 20 years ago and some extended their approach to share full payment information (i.e. whether accounts were up to date or in arrears each month) in 2010. Unlike other industries, not all utility companies have followed suit. However, during the pandemic and cost of living challenges, we saw an increase in utilities sharing data as they are keen to use it to target support to those most in need. We now estimate that adoption in energy is extremely high with almost all the large suppliers sharing data. The water sector is lagging behind slightly with data analytics sharing, though the majority of large suppliers also share data.

Questions for utilities companies

If persistent debt levels and the need to support financially vulnerable customers aren’t enough justification for you, should we consider some fundamental questions when contemplating whether utilities should share data with CRAs?

Can utility customers get into debt? Looking at Ofgem’s latest reports the answer to this is unquestionably, yes. We see that the volume of ‘outstanding’ 90 days + consumer energy debt currently sits at its highest ever level of £3.7bn, with no payment arrangement in place accounting for most of the arrears.^[2]

Is utilities debt different from other consumer debt? Most utilities offer the option to spread payments which is similar to paying monthly for a mobile phone contract or broadband. They can all be considered ‘essential services’. However, there are factors that are unique to utilities; historically a lack of timely accurate billing and the use of ‘estimates’, for example, are challenges to data sharing. However, the increase in the use of water meters and roll-out of smart meters (now operational in around 55% of homes) should negate these, and, in the meantime, consumers can provide their own meter reads to ensure bills are accurate.

Why should utility companies share data with Credit Reference Agencies?

Basically, it’s good for consumers and businesses.

1. It’s in the interest of consumers:

‘Responsible lending’ is the foundation of CRAs in the UK. How can any business make a good credit decision on a consumers’ financial situation if they don’t have the full picture? Consumers could have thousands of pounds of energy debt that is not only hidden between themselves when assessing affordability but also invisible to a bank when considering a loan.

Protecting Consumers Across Sectors. The FCA have introduced ‘Borrowers in Financial Difficulty’ Guidelines and ‘Consumer Duty’. Both of these contain elements that ensure lenders adopt processes that drive good outcomes for customers in financial difficulty. When utility companies don’t share data with CRAs, consumers’ financial difficulties are invisible to lenders. Therefore, the steps that can be taken by lenders to signpost support and consider forbearance options (reducing interest rates, extending terms, etc.) may not be offered proactively as they are oblivious to the difficulties the consumer may be facing to pay their energy debts.

Affordability. When lenders offer credit to a consumer (either proactively through credit limit increases or reactively, when a consumer applies for credit), they must assess the decision based on 2 lenses. The lender must consider: “1.  the risk that the customer will not make repayments under the agreement by their due dates (this is sometimes referred to as credit risk); and 2. the risk to the customer of not being able to make repayments under the agreement in accordance with CONC 5.2A.12R^[3] (referred to as ‘affordability risk’ in this section)”. This second assessment is fundamental to protecting consumers by ensuring that they can afford an increase in monthly repayments. If a utility does not share data with CRAs (and this data must contain accurate information on the balance outstanding and monthly repayments when in arrears) then the lender cannot accurately assess a consumer’s affordability resulting in bad customer outcomes.

It will help ‘Credit Invisibles’. Around 4.4 million people in the UK are virtually indiscernible to the mainstream financial system because there is no information available on their track record at a CRA. Without access to affordable, relevant financial products, the ‘Invisibles’ have fewer choices and are forced to pay a ‘poverty premium’, often turning to subprime lending. There are many reasons people are invisible: divorce, foreign nationals, savers, and renters (though this is now being addressed through the rental exchange data-sharing initiative). For these groups, if you’ve never had credit, it’s harder to get credit. By sharing data with one or more of the CRAs, utilities can make a difference to this marginalised population and aid financial inclusion.

Support for vulnerable customers. CRAs also have a crucial role to play in supporting utilities suppliers to help vulnerable customers. For example, the recent introduction of the Involuntary Prepayment Code of Practise from Ofgem^[4] aims to ensure protections for the most vulnerable customers. Part of this code requires greater diligence by Suppliers where a household includes an occupant aged over 75. CRAs can help with this assessment as we have a view beyond that which is held by the utilities sector alone.   CRAs can also help improve the quality of consumer data held by utilities. This can have several benefits; from correctly identifying ‘customers’ (as opposed to accounts) – which can ensure that information is not ‘lost’ should a vulnerable customer move address, establishing occupants for void properties but also to help identify, for example, those eligible for priority services initiatives where there are gaps in internal data (such as date of birth).

Reduce bills. Operational costs should reduce if CRA data is used effectively to understand customers’ ability to pay and structure payment plans for success.

2. It’s good for business:

There is no charge.^[5] CRAs don’t charge to share data with them, and it’s easier than you think to compile the data.

It can help with regulation. Not only can CRAs help with Ability to Pay but as per Ofgem’s Draft Consumer Vulnerability strategy 2025^[6], there is a clear move towards greater sharing of data across industries and proactively identifying vulnerable customers. In addition, Ofwat’s Paying Fair Guidelines (2022) stated that suppliers can “Use credit reference agency data to help identify customers that: may qualify for support, be at risk of falling into debt; and can afford to pay and can be contacted for payment. In Ofwat’s review of suppliers^[7] adherence to these principles in 2024, it’s interesting to note that examples of good practice and recent changes include greater use of CRA data:

Yorkshire Water has recently evolved its use of credit reference data to start to establish a robust affordability scorecard rather than only for debt recovery activity. This will enable the company to assess potential customer support needs. This will be evolved and embedded throughout 2024-25 to ensure Yorkshire Water are utilising credit reference data to the best of its ability to support customers with bill affordability and financial help.

Reduce losses. Yorkshire Water summarised their reasons for data sharing many years ago and they all remain relevant today. In this, their managing director confirmed that; ‘The potential financial benefit that can be derived from Yorkshire Water taking the lead in using full CAIS data is significant. By sharing information on all customers, including those who may be experiencing difficulties, it will not only reduce bad debt but ensure that customers are treated fairly and responsibly.” Ultimately, CRA data can help address the challenge of identifying ‘Won’t payers’, as opposed to ‘can’t payers’.

Reduced cost to service and collect. Once data sharing with CRAs is established you can begin to see what data you can use from CRAs.  For example, understanding a consumer’s total financial picture will help you to structure debt repayment plans for success and assess your ability to pay in a fair, consistent and holistic way. Not to mention understand who lives at a property and trace debt.

In sharing data with CRAs, utilities companies can help support vulnerable customers, address rising persistent debt levels and support their own business needs by collaborating with the utilities bureau.