EE and Virgin Media fined for overcharging customers

28 Nov 2018 01:18 PM

Ofcom yesterday fined EE and Virgin Media a combined total of £13.3m for overcharging phone and broadband customers who wished to leave their contracts early.

The penalties are the result of investigations into EE’s and Virgin Media’s early-exit charges.

Phone and broadband companies can charge customers who decide not to see out the minimum term of their contracts.[1] But under Ofcom rules, those charges must be made clear to customers, and must not make switching to another provider too costly. [2]

Our investigation found that both EE and Virgin Media failed to comply with these rules, because:

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, in the interests of their customers.”

What happened with EE

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. We 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.[3]

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.

EE fine and customer refunds

In light of these findings, Ofcom has fined EE £6,300,000 for its failings. The figure 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, EE 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.

What happened with Virgin Media

Our investigation 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.[4]

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.

Due to Virgin Media setting its early-exit charges too high, its customers were disincentivised from switching to another provider, which is against Ofcom’s rules.

Our investigation also discovered that Virgin Media failed to publish clear and up-to-date information on its website to help customers understand its early-exit charges.

Virgin Media fine and customer refunds

Ofcom has fined Virgin Media £7,000,000 for its failings. We have also fined the company an additional £25,000 for providing incomplete information in response to a statutory information request.[5]

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%, and up to 50% 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[6]. Virgin Media has agreed to:

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.

Notes to editors

  1. General contract law permits this.
  2. Ofcom’s General Condition 9.2(j) (now C1.2(k)) specifies that consumer contracts must specify  “any charges due on termination of the contract, … [in a] clear, comprehensive and easily accessible form”. This ensures consumers have information about their contracts which is clear and accurate, so they know what their rights and obligations are and can make decisions about the right services to buy. Ofcom’s General Condition 9.3 (now C1.3) requires that: “Communications Providers shall ensure that conditions or procedure for contract termination do not act as disincentives for End-Users against changing their Communications Provider”. This ensures that the process for consumers to switch providers is as smooth as possible and does not unnecessarily increase their switching costs.
  3. More detail on EE’s overcharging
    • EE’s overcharging was between at least 1 January 2012 and 5 June 2018 for its mobile customers, and 1 January 2012 and 7 August 2018 for its landline and broadband customers.
    • EE’s discount contracts offer a reduction on the monthly retail price. It had between around 8m and 15m of these contracts in the relevant periods. Discounts offered by EE during those periods included a friends and family discount; a price rise discount; a new customer discount and a staff discount.
    • EE indicated customers were over-billed for early-exit charges that were higher than they should have been by between £11.4m and £13.5m during the relevant periods. EE estimates that discount consumers actually overpaid in the order of £3m - £4.3m during the relevant periods. As EE only retains billing data for 18 months for mobile consumers and 24 months for home consumers, this figure is based on records for the period February 2016 to August 2018, plus estimates.
  4. More detail on Virgin Media’s overcharging
    • Virgin Media’s overcharging was between 22 September 2016 and 22 August 2017.
    • Prior to 22 September 2016, Virgin Media’s residential contracts were typically 18 months which included 12 months at the cheaper ‘discount price’ and for the last six months customers were charged the higher ‘list price’. On 22 September 2016, it made changes to its residential contracts and reduced most of them to 12 months to be charged at a single price equivalent to the ‘discount price’. However, it did not reduce the level of its early-exit charges at the same time to reflect that a customer would now pay the lower ‘discount price’ for the duration of their contract. This led to Virgin Media charging early-exit charges that were set too high.
    • The average overcharge was £34 but over 23,500 customers were overcharged by more than £50 and around 6,800 customers were overcharged by more than £100.
    • Between the period 1 September 2016 and 20 March 2017, the information that Virgin Media provided on its website about early-exit charges was not clear and up-to-date and made it difficult for customers to know how much they would be charged if they wanted to switch to another company.
  5. Virgin Media provided incomplete information to Ofcom about one of its internal pricing projects and the extent to which it had involved a review of early-exit fees. Ofcom has statutory powers that require companies to provide information that we consider necessary for the purpose of carrying out our functions. Where the information provided in response to such requests for information is inaccurate, incomplete or not provided by the deadline set by Ofcom, we consider these matters to be serious as they can adversely affect Ofcom’s ability to carry out its functions.
  6. Ofcom has decided to close its investigation into the fairness of Virgin Media’s home move policy under the Consumer Rights Act 2015. We have taken that decision in light of the changes that Virgin Media has agreed to make to improve the transparency of the information it provides to new customers about its practice of charging early-exit charges if they move to an address outside of the Virgin Media network. We have also had regard to its decision to allow home movers to roll over an existing contract to a new address within the Virgin Media network, rather than pay early-exit charges.