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Survey: Some power companies impose hefty security deposits on payment defaulters

Up to one in four power grid companies polled by Yle said that they require a security deposit for customers with bad credit.

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Image: Derrick Frilund / Yle

An informal Yle survey has found that dozens of Finnish electricity suppliers and grid operators may impose up-front security deposits on customers with poor credit histories.

Yle asked 68 power companies and 52 grid operators in what circumstances they require customers to pay security deposits.

“The feeling is that [companies] continue to demand security deposits on quite flimsy grounds,” said lawyer Jukka Kaakkola of the Finnish Competition and Consumer Authority.

The straw poll found that about one in four power grid operators deemed even a single payment default as good reason to demand an up-front payment for electricity service. Another one in four said that they do not require their customers to pay a deposit – under any circumstances. Some 60 percent of grid operators responded to Yle’s survey.

However fewer than 20 percent of electricity providers responded to Yle’s call. Of these firms, roughly one third said they ask for a deposit for new customers or customers with payment defaults.

Winter heating should be assured

According to Kaakkola, the practice of insisting on an upfront payment is most likely to be problematic during the winter. Current legislation governing the electricity market forbids providers from disconnecting customers’ electricity supply between October and April, if heating a permanent residence requires electricity.

There have been other cases where the home is not heated by electricity, but where the heating system cannot operate without electricity.

“The electricity provider may face exposure to liability if, contrary to these terms, it has cut the power supply and inconvenienced the consumer,” Kaakkola noted.

The survey found that the size of the deposit required by power companies varies. The most common sum was the equivalent of three months’ electricity consumption or transfer fees. In one case the fee corresponded to a six-month period, which called on customers to pay the equivalent transfer fee in advance if they wanted the firm to deliver electricity.

In practice, the size of the fee depends on the kind of home involved. In the case of a large electrically-heated detached home, the deposit could run to thousands of euros, while the occupants of a small flat would only have to fork out hundreds of euros.

More pain for people facing financial troubles

Jaana Vanhala of the Sosped welfare organisation said the practice is nothing new. She told Yle that she understands the electricity providers’ desire to safeguard their earnings. However she said that she has also dealt with customers who have emerged from years of struggling with debt, only to be asked to pay up front for electricity.

She said that one common factor in these cases has been that old payment default notifications have remained in the system. She noted that based on her experience it appears that utilities often deal with new and old default notifications in the same way.

“In these situations we always try to show that the individual is able to take care of these matters. But unfortunately it doesn’t help a lot,” Vanhala said.

According to Kaakkola, many power companies disregard the consumer authority’s guidelines and demand security deposits.

The authority has said that electricity providers have the right to claim a deposit or advance payment from consumers if there is a particularly valid reason. That reason might include evidence that the customer is incapable of paying bills.

The authority has provided a precedent ruling indicating how the law is to be applied. Sanctions against an offending company are usually only considered after a decision by Finland’s Market Court.

"Electricity an essential service"

According to the Consumer Ombudsman, however, a consumer’s inability to pay bills does not constitute a weighty enough reason to demand a security deposit. The office has noted that electricity is an essential service and that it is not possible to operate without it in modern society. It must be available to all regardless of their financial status and other personal circumstances, but not on any terms at all.

“The ability to pay needs to be checked carefully when asking for a security deposit. If [the customer] has lost the ability to pay, there isn’t necessarily a strong basis to demand a deposit,” Kaakkola noted.

Pekka Salomaa, director of markets with the energy providers lobby group Finnish Energy, said that he is familiar with the ombudsman’s guidance, which has played a role in the organisation’s internal training.

“We agree with the guideline that we need to look at the overall ability of a consumer to pay. Of course each [member] company will decided independently when to ask for a security deposit – while maintaining impartiality,” he commented.

According to data from the credit rating agency Asiakastieto, nearly 400,000 people in Finland have defaulted on debts.

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