GreenWise can help your SME move to a low carbon economy. For latest news click here> For advice and guidance click here >

Consumers to be penalised if Green Deal loan is paid back early

20th March 2012
Households are likely to be heavily penalised if they pay back their Green Deal loan early under the Government's current plans.
Families that wish to pay off the upfront payment after just five or 10 years will still be liable to pay the provider the unpaid interest for the remaining term of the 25 year agreement.

The loophole may catch out property owners who wish to sell their homes but the prospective buyer is unwilling to allow the Green Deal charge to remain on the property.

The Green Deal loan scheme for energy efficiency measures is expected to be introduced this October but energy companies and industry leaders are complaining there is still too much detail to be worked out.

This latest twist over the issue of unpaid interest was confirmed in a written answer by Energy Minister Greg Barker in response to a request by Labour Shadow Minister Luciana Berger.

Barker revealed that because the Green Deal is a credit agreement the rules are governed by the Consumer Credit Act, which allows providers to charge fees for early repayments.

And he said some providers may be able to claim additional compensation, above what is currently permitted, but only where the interest rate is fixed and the plans run for more than 15 years.

In his letter, he wrote: "Our ultimate objective is to keep the cost of finance as low as possible for all Green Deal customers. Our aim in allowing this compensation is to enable Green Deal providers to claim any losses directly from someone who is choosing to repay their plan early, rather than pricing this risk into all Green Deal plans.

"However, there are restrictions around the compensation to ensure fairness for consumers; any compensation claimed should only cover the loss the Green Deal provider has suffered as a consequence of a customer choosing to repay early. That compensation must also be fair and objectively justifiable.

"The amount is ultimately capped at the amount of interest that would have been payable had the plan continued, but opportunities to reinvest need to be taken into account."

The Energy Minister said his department had received a number of responses on this specific issue in the consultation and DECC will set out more fully the Government response shortly on this as well as detailed guidance on how Green Deal providers should work out any potential compensation.

He added: "In all cases, Green Deal providers remain free not to charge any fee at all if they feel able to manage the risk of early repayment in other ways, and Green Deal providers will need to set out their approach to early repayment fees at the outset of the contract."

However, Shadow Climate Minister Luciana Berger said consumers should not be penalised for repaying their loan early.

In a statement, she said this afternoon: "The Green Deal must be a fair deal for consumers. Ministers must make sure finance is offered on fair terms and consumers are not hit by hidden charges.

"It would be completely unfair if the public are forced to pay hefty penalties for doing the right thing and trying to repay their loans as soon as they can.

"It’s vital that the Government address this before the Green Deal launches."

Like this story? Please subscribe to our free weekly e-newsletter at the top of the page for more content like this.

Related content:

Web design by Matrix Create