Charging Practice of a Company

  griffon56 16:47 29 Jul 08
Locked

A company, which shall remain nameless for the time being, is charging its Monthly Direct Debit customers part of a price rise which ought not to be charged until the following financial year.

When the company reviews an account each year on the anniversary of setting up the Direct Debit, it sets a monthly charge for the next 12 months. One of the things it takes into consideration is any price rise occurring in the April following the review. That is, a price rise intended for next year.

This has the effect of bringing forward part of that price rise into this year. The maximum effect occurs if the review date is at the end of September, when 6 months worth of current prices is combined with 6 months worth of next year's charges to give an average monthly charge for the next 12.

An example makes it clear. Say the current charge is £10 per month and the rise next April is forecast to be £1 per month, already agreed by the industry regulator. At the review date the company adds 6 months at the current charge, that's £60, to 6 months at the increased charge, that's £66, making a total of £126, which when divided by 12, gives a charge of £10.50 per month.

This charge is the new Direct Debit, payable from October onwards, which means that the customer is paying 50p above the correct price for a period of 6 months and then 50p below the correct price for the 6 months after April the following year.

The major point is that part of a price rise, which ought not to take effect until April next year, has been brought forward into the current financial year.

This may not sound much, but if there are a lot of customers and the rise is substantial, it means an advance increase in cash flow of considerable size.

There's an additional snag to the practice which I'll set out when I've seen what people think of it so far. What do you think? Is the practice fair or not?

  Si_L 16:54 29 Jul 08

Life is too short to be writing 8 paragraphs about 50p.

  bstb3 16:59 29 Jul 08

My initial instinct is that by forward dating the price increase in this manner the customer is losing out on the interest on the first 6 months overpayments (as per your example). I dont know the numbers involved but this is likely to be negligible in most cases.

If price decreases (remember them?) are handled in the same way then yes, it probably is fair.

To be completely fair the calculation should include a small deduction from the monthly charge to cover the interest impact, and the amount of any overpayment made to the point a customer leaves before completing the 12 month period should be reimbursed. I suspect it isnt going to be :)

  Forum Editor 17:19 29 Jul 08

I really belongs in Consumerwatch, and I'll move it there now.

  Forum Editor 17:25 29 Jul 08

is that the company is making life unnecessarily complicated - for itself.

If it got a variable Direct Debit mandate it wouldn't need to do all this complex forward charging, it would simply call off a greater monthly payment on the payment date following the price increase. That's what lots of other companies do. When my monthly subscription to SKY is due to increase the company writes to me and warns me that on a specified payment date my Direct Debit payment will increase - no action is necessary on my part, the company simply harvests the increased payments from all relevant customer accounts as they fall due.

Shouldn't you really be addressing your concerns to the mystery company concerned, rather than asking what we think about it?

  Chegs ®™ 17:47 29 Jul 08

Tue, [email protected]:54

What do I think?

Life is too short to be writing 8 paragraphs about 50p.


It isnt about 50p,if you actually read it the OP does say its an example.

  pavvi 18:42 29 Jul 08

is it tv licensing?

  Stuartli 21:20 29 Jul 08

I suspect your question probably hits the nail on the head...:-)

  Forum Editor 23:30 29 Jul 08

there's really nothing to be concerned about.

  GRIDD 23:54 29 Jul 08

"and the amount of any overpayment made to the point a customer leaves before completing the 12 month period should be reimbursed. I suspect it isnt going to be :)"


Refunded?

Not quite, TV license by DD works out that you py in advance. I'm someone who used to pay by DD when I stopped I was sent a letter detailing when my cover would run out. I waited for this date and then bought a license.

  Pine Man 12:02 30 Jul 08

I suspect that the extra few pence you are being charged for DD is about the same amount that you would lose in interest on the full amount paid a year in advance.

You have a choice.

This thread is now locked and can not be replied to.

Nintendo Switch review: Hands-on with the intuitive modular console and its disappointing games…

1995-2015: How technology has changed the world in 20 years

Prehistoric Britain is laid out in these Royal Mail stamp illustrations

Best running headphones | Best sport & fitness headphones: 4 brilliant pairs of wireless…