Ofcom to fine mobile providers over misleading contracts

Mobile phone network providers face fines of up to 10 per cent of their turnover if they don’t stamp out contract mis-selling warned Ofcom today.

The networks will be responsible not just for their own behaviour but for that of retailers selling their services.

Ofcom said it has had to introduce the mandatory rules after a voluntary code of practice introduced in 2007 failed to lead to a significant reduction in the number of complaints from consumers.

The regulator warned the industry last year that it was looking at introducing a mandatory regime; it said the prospect of this did lead to a drop in the number of complaints from more than 600 a month to less than 200.

The new requirement, known as a General Condition, is legally enforceable under the Communications Act 2003.

"We have concluded that reliance on the ‘voluntary’ code does not provide adequate protection for consumers. We can formally investigate whether the rules are being followed and ultimately impose sanctions for breaches of these rules. We will also be able to make sure that the rules are being applied consistently by all mobile service providers,” said Ofcom.

The new rules, which came into force at midnight, lay out a number of rules providers must abide by. This includes ensuring consumers intend to and are authorised to enter into a contract; get the information they need at the point of sale; and the terms and conditions of cashback deals offered by their retailers are not unduly restrictive.

For example, a typical case might involve a consumer who has a contract with a provider filing a complaint about poor reception or signal on the phone. The consumer is persuaded to pay for a new handset on the understanding that this will solve the signal problem - but it doesn’t.

Ofcom said it had also come across cases where a mobile phone contract cost twice what the consumer was led to believe; and the debt ended up in the hands of a debt collection agency.

Network providers must also carry out certain due diligence checks in respect of their retailers.

If a network provider or a reseller is found to have mis-sold products or services, engaged in dishonest, misleading or deceptive conduct, Ofcom can fine the provider up to 10 per cent of its annual turnover.

James Parker, mobiles manager at price comparision site Moneysupermarket, said he hoped that Ofcom would exercise its power.

“Regulation from Ofcom has been effective in bringing down the number of mobile mis-selling complaints, but consumers are still falling prey to this practice. A recent poll from moneysupermarket.com found that just 23 per cent of people who have recently bought a mobile felt he provider explained the product details appropriately.

"This research shows a significant number of consumers could end up tied into an expensive and inappropriate contract," he said.