Curbing unfair additional charges on consumers' bills

Ofcom today announced proposals to curb unfair additional charges levied by communications providers on consumers’ bills.

The proposals are designed to ensure that extra charges are fair and that landline, broadband, mobile and pay-TV providers clearly market the true cost of their services.

Increasing competition has driven down headline prices and offered consumers more choice. However, falling headline prices are not the whole picture.

Consumers may also pay additional charges as part of complicated contract terms. Some providers make a range of additional charges, for example, when consumers choose to pay by cash or cheque rather than by Direct Debit; cancel a contract before the minimum period has finished; or make a late payment.

Ofcom is proposing to introduce new guidance for communications providers. This will spell out Ofcom’s view of the law and what communications providers have to do to meet their obligations under the Unfair Terms in Consumer Contract Regulations 1999 to ensure that additional charges are fair and transparent.

Once the guidance has been finalised, Ofcom is proposing to give communications providers three months to comply. Ofcom will then start an enforcement programme - where necessary through the courts.

The draft guidance has two main principles:

• providers need to be clear and up front with their consumers and do more to make it easy for consumers to understand the charges; and
• for charges that are not part of the price of a main service under the contract, these must be demonstrably fair.

The draft guidance covers a number of specific areas including:

Charges for paying bills by cash or cheque rather than by Direct Debit

• When providers advertise prices, they must make clear what any extra charges for paying by cash or cheque will be.
• If a provider does not make the extra charges prominent and transparent enough that consumers see them as part of the main price under the contract, then the charges must reflect direct costs only. They should only include the provider’s extra costs of collecting normal payments and not an opportunity to collect further revenue.
• However, where the extra charges are prominent and transparent enough, normal competition – and not regulation – will provide price discipline on behalf of consumers. Customers will then have all the information that they need to know which provider to choose.

Protection for low income households

From mid-2008, BT will offer a new service – BT Basic – which offers a low cost home phone service to those on low incomes and pensioners that are in receipt of certain government benefits. BT Basic will not include an extra charge for consumers who do not pay by Direct Debit and, in contrast to previous social telephony products, will be available to consumers who have pre-pay mobile phones and/or broadband services.

Charges for late payments and failed payments

• Providers should make consumers much more aware of these charges.
• A charge should only be made after consumers have had a fair chance to pay their bills.
• The charges should reflect only the direct costs providers incur, like the true extra cost of collecting the money.

Minimum contract periods and charges for canceling contracts

• Providers must make the length of contracts clear, as well as the costs involved if a consumer chooses to break a deal.
• Subsequent contract periods should not be imposed unless there is a clear benefit to the consumer and cost to the provider.
• A consumer who ends a contract early should never have to pay more than the payments left under the contract period - in fact they should often pay less than this, to reflect costs providers save because the contract ends early and their ability to recoup sums by selling services to other consumers.

Ofcom Chief Executive Ed Richards said: “Consumers are benefiting from greater competition and lower prices. But for consumers to get an all round fair deal they need to know the full costs of the services they are buying. Our proposals will encourage companies to be open and straightforward about additional charges where they feel it is necessary to include them. In addition, our proposals mean that, in some cases, additional charges will be subject to clear limits which would provide direct protection for consumers.

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