Ofcom gets tough(ish): EE and Virgin Media fined for overcharging
- Ofcom fines EE £6.3m and Virgin Media £7m for breaking consumer protection rules
- It says both companies levied excessive charges on customers who ended their contracts early
- Still, the resulting punishments might be seen as just a minor slap on the wrist
Ofcom has today fined EE and Virgin Media a combined total of £13.3m for overcharging phone and broadband customers who wished to leave their contracts early.
Ofcom says the penalties are the result of investigations into EE’s and Virgin Media’s early-exit charges. It points out that phone and broadband companies can charge customers who decide not to see out the minimum term of their contracts, but under Ofcom rules, those charges must be made clear to customers, and must not make switching to another provider too costly.
Problem was both EE and Virgin Media failed to comply with these rules lead to around 400,000 EE customers who ended their contracts early being over-billed with customers over-paying up to £4.3m.
Almost 82,000 Virgin Media customers were also overcharged a total of just under £2.8m, it says.
Both companies had failed to make sufficiently clear the charges customers would have to pay if they ended their contract early.
Gaucho Rasmussen, Ofcom’s Director of Investigations and Enforcement, said: “EE and Virgin Media broke our rules by overcharging people who ended their contracts early. Those people were left out of pocket, and the charges amounted to millions of pounds.
“That is unacceptable. These fines send a clear message to all phone and broadband firms that they must play by the rules.”
Ofcom’s investigation found that, over a six-year period, terms applying to EE’s ‘discount contracts’ did not clearly set out the charges its mobile customers would have to pay if they ended their contracts early. It also found that up to 15 million discount contracts for EE’s mobile, landline and broadband customers required them to pay excessive early exit charges
Of those customers, 400,000 decided to leave their contracts early during the relevant period. They were collectively over-billed by up to £13.5m in early exit charges.
This was because EE mis-calculated early-exit charges for these customers based on the non-discounted monthly retail price. Affected customers were therefore allowed to pay a lower price while they remained EE customers, but were treated as if they were paying another, higher price if they wanted to leave.
Not all affected customers paid the excessive charges, as some were subsequently waived by EE.
Taking this into account, EE estimates that its discount customers overpaid by up to £4.3m. These excessive charges disincentivised EE customers from switching to another provider, which is against Ofcom rules.
Ofcom fine of £6,300,000 for EE’s failings incorporates a 30% reduction to reflect that EE admitted the breaches and agreed to settle the case.
As part of EE’s co-operation with our investigation, the company agreed to change its terms and significantly reduce its charges. EE has refunded just over £2.7m to the affected customers it has been able to identify, although this means up to £1.6m cannot be refunded. Ofcom took these facts into account when setting the financial penalty.
As a result of our investigation, EE also volunteered to conduct an in-depth review of its processes and systems to help secure its future compliance with our rules, which we welcome.
Ofcom found that, for almost a year, Virgin Media levied early-exit charges that were higher than customers had agreed to when signing up to their residential contracts. The company overcharged almost 82,000 customers who left their contracts early, by a total of just under £2.8m – an average of £34 per person. Some 6,800 customers were overcharged by more than £100.
Virgin Media’s charges also disincentivised its customers from switching to another provider, and the company failed to publish clear and up-to-date information on its website to help customers understand its early-exit charges.
Ofcom has fined Virgin Media £7,000,000 for its failings with an additional £25,000 for providing incomplete information in response to a statutory information request.
Virgin Media has reimbursed or made donations to charity in respect of 99.8% of affected customers and the company is continuing its efforts to trace remaining customers in order to refund them. In the event it is unable to trace these customers, it will donate the remaining refunds to charity.
As a result of our investigation, Virgin Media has significantly reduced the level of its early-exit charges by an average of 30 per cent and up to 50 per cent in some cases. Virgin Media now applies an additional reduction to the early-exit charges paid by customers who end their contract after moving house.
The company has also made changes to its procedures and contract terms applicable to home movers. Virgin Media has agreed to:
make it clearer in contract terms, on its website and in conversations with customers, that Virgin Media’s network does not cover the whole of the UK; and that, if a customer moves home to an area outside of its network, they may be liable to pay an early-exit charge;
promote 30-day rolling contracts as an alternative option for customers who are aware they may need to move house in the near future, and:
update its training processes and customer service agents’ scripts and materials to ensure that customers who indicate they may need to move home are provided with correct information.
In addition, customers who move house within Virgin Media’s network, and retain its services, will no longer have to sign up to a new minimum-term contract to avoid paying early-exit charges. Instead, they can now continue their existing contract at their new address.
Has Ofcom been strict enough here?
It’s not as if both companies have just been guilty of a simple oversight or two. They both seem to have carefully designed a series of rules and procedures aimed at systematically and unfairly relieving customers of their cash by withholding information. That sounds to me like organised theft and for ‘organised theft’ the penalties should hurt.
So if, as Ofcom asserts, the fines send a clear message what’s the message exactly? Please don’t openly rip off your customers or we’ll be forced to tap you on the wrist?