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Home > Consultations > Consultation Documents > Ofcom review of additional charges > Frequently asked questions
Additional charges - frequently asked questions
List of questions
Background to the review
Q1. What are additional charges?
Q3. What has prompted Ofcom to review additional charges?
Q4. What has Ofcom been doing since opening the review in June 2007?
Q5. What consumer research did Ofcom do?
Q6. What laws are you applying to these charges?
Q7. Why is Ofcom using guidance? How can they be enforced?
What has Ofcom found?
Q8. What is Ofcom’s view of non-direct debit charges?
Q9. Why hasn’t Ofcom banned non-DD charges?
Q10. Can it really cost that much to offer different payment methods?
Q11. Can suppliers charge what they like for non-DD?
Q12. What help is available for low-income consumers who may struggle to afford telephone services?
Q14. What is Ofcom’s view of early termination charges?
Q15. I’ve had to cancel my services whilst in contract for reasons out of my control, should I still have to pay the early termination charges?
Q16. What is Ofcom’s view of subsequent minimum contract periods?
Q17. What is Ofcom’s view on late payment fees?
Q19. What amount does Ofcom deem an acceptable late payment fee?
Q20. What is Ofcom’s view of the other additional charges and contract terms Ofcom has looked at?
Q21. How much do communications providers make from these charges?
What happens next?
Q23. Why does Ofcom need to consult and what might change?
Q24. When will we expect to see an outcome of the consultation?
Q25. How can I let Ofcom know my views?
List of Answers
Q1. What are additional charges?
A number of suppliers of communications services have additional charges, over and above standard monthly charges (such as line rental) and what we pay for making calls, sending texts etc. This can apply equally across different markets, including home phone, mobile, broadband or pay TV.
These can include charges for:
- not paying by direct debit;
- for paying late or for a payment failing;
- to get a service reinstated which had been disconnected;
- for terminating a contract before the end of the minimum contract period;
- for ceasing service, even when this is after the end of the minimum contract period;
- for itemised or paper billing.
The consultation and draft guidance also covers a number of contractual terms which may in some cases lead to consumers having to pay additional amounts. Including:
- minimum contract periods (which may lead to an early termination charge)
- subsequent minimum contract periods (again which may lead to an early termination charge)
- minimum notice periods (which may lead to a consumer paying for service for a period even when they have stopped using it).
Q2. When did communications providers introduce these charges? Why weren’t consumers informed about them?
Most of these charges have been around for a long time in some form. But they have become more important, for example:
- minimum contract periods have tended to become longer for mobile contracts and there is an increasing tendency for them to be applied to fixed voice services – this makes it more likely that a consumer will find they need to terminate early and face an early termination charge
- non-DD charges have tended to increase
- charges for itemised billing / paper bills are relatively recent, and are becoming more widely applied
In general, information about these charges has been available in the past, but has not always been easy to find. Ofcom is proposing that suppliers of communication services should do more to make their customers aware of them. There may also be issues around the fairness of the terms.
Q3. What has prompted Ofcom to review additional charges?
Ofcom have received many complaints about these additional charges. A lot of these complaints have been about non direct debit charges. We’ve had a lot of letters from MPs about this, and there have been a number of newspaper articles. However, we’ve also had complaints about other extra charges. In the last six months we’ve had almost as many complaints about charges when you cancel your contract early. We’ve had complaints about a number of different companies.
The increasing level of complaints has provided the opportunity to carry out a full review across a broad range of charges common in the communications industry.
This doesn’t necessarily mean that firms are doing anything wrong, but it’s our job to make sure that companies play fair, and that ordinary customers know what to look out for.
We’ve also heard worries that these extra charges hit people with the lowest incomes. For example, they may not have a bank account and then have to pay more because they can’t set up a Direct Debit.
Q4. What has Ofcom been doing since opening the review in June 2007?
Ofcom began to receive complaints in early 2007 about non-direct debit charges. These continued to rise and in June 2007 Ofcom announced that we were opening a review of non-direct debit charges and a range of other additional charges.
Since then we have been:
- collecting evidence about what consumers think
- collecting evidence about why suppliers set the charges they do
- looking at the legal issues
Q5. What consumer research did Ofcom do?
Ofcom has:
- carried out market research to better understand consumers’ awareness of and attitudes towards these types of charges and terms;
- carried out further research using in-depth interviews to understand the issues from an individual household perspective. One aspect of this looked at awareness and attitudes towards non-direct debit payments among low income consumers;
- looked at the individual complaints made by consumers directly to Ofcom and complaints which have been forwarded to us by MPs on behalf of their constituents; and
- written to a number of consumer groups to obtain their views.
Q6. What laws are you applying to these charges?
The Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations).
The Regulations apply to all terms which are not individually negotiated in contracts between suppliers and consumers. In practice, this means all standard form contracts with consumers and will include all consumer contracts for communications services.
The Regulations are a piece of general consumer protection law and are designed to make sure that terms and conditions are clear and fair. They seek to protect consumers from terms which cause a significant imbalance in the rights and obligations of the supplier and the consumer, where this imbalance is to the consumer’s detriment. In particular:
- companies need to be clear with their consumers and make it easy for the consumer to understand the charges they pay; and
- for charges which are not part of the price for the main service, suppliers must be able to show the charges are fair.
Q7. Why is Ofcom using guidance? How can they be enforced?
Ofcom is proposing to publish guidance, which will set out our views on issues we’ve covered here. This will explain what the Regulations [1] mean in practice for companies who provide communications services, for the particular extra charges we have reviewed here. This will help those companies understand where we are likely to take action, and why.
The guidance, which we are consulting on, indicates Ofcom’s view of the law and the circumstances in which we may take enforcement action. We will expect suppliers to comply with the guidance. We are proposing to give them three months (a quarterly billing cycle) to make any necessary changes to their terms and conditions and then start an enforcement programme.
It is ultimately for the court to decide whether a term is unfair and to make an order against its use.
[1] The Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations).
Q8. What is Ofcom’s view of non direct debit charges?
Customers have told us:
- it is wrong for companies to charge them extra if they choose to pay their bills by cash or cheque. They also feel this hits people on low incomes who, in particular, can’t afford it.
- customers often don’t know these extra charges even exist.
The companies have told us:
- Direct Debit is a cheap way to collect their money automatically. It costs them more if customers choose other ways to pay (even if they pay promptly);
- many customers will pay late without an automatic system doing it for them. This in turn costs extra money when companies have to chase payments and send out reminders; and
- customers who don’t pay by Direct Debit are more likely to end up not paying at all, and that the debts they leave should be spread over the other customers who avoid Direct Debits.
Ofcom has found that both sides have strong feelings on the subject. In turn, we are proposing that:
- companies must be clearer on what customers will actually pay. When they advertise prices, it must be obvious what any extra charges for paying by cash or cheque will be. Customers can then shop around and compare, with charges brought under the spotlight of healthy competition;
- if a company doesn’t make it obvious in its advertisements what the different charges for different ways of paying are, any extra charges must relate to direct costs only. They should only include the company’s extra costs of collecting normal payments – and not, for example, chasing bad debts. Ofcom will make sure our rules for fair charging are followed.
However, where extra charges are made obvious in the advertised prices, normal competition – and not Ofcom - will decide how much they will be. We are consulting on proposals that companies should make their advertising and brochures much clearer. Customers will then have the facts to know who to choose and exactly what they’ll pay. We are proposing that if companies fail to be clearer, we may need to investigate further and make sure their charges fairly reflect genuine extra costs.
Q9. Why hasn’t Ofcom banned non-DD charges?
The law does not allow us simply to ban additional charges such as non-direct debit charges. See question 8 for Ofcom’s proposed view of what companies need to do to ensure their charges are lawful.
Some consumers have told us they don’t mind there being an incentive to pay by DD, but said that surely it’s wrong for suppliers to charge more for people who want to pay cash. Non-DD charges can be described by suppliers as ‘discounts’ for paying by direct debit or as an ‘additional charge’ for paying by other means. Ofcom proposed position is that this doesn't make any difference. If consumers have the option, for example, to pay £15 a month (DD) or £18 a month (non-DD) we are proposing the view that the issues remain the same, irrespective of whether the £3 difference is called an additional charge or a discount, and that both prices need to be very clear.
Q10. Can it really cost that much to offer different payment methods?
Companies incur greater costs where consumers don’t pay by direct debit – it is reasonable for those consumers who cause the extra costs to pay them. This is common practice, not just in the communications sector, but also, for example, in the energy sector.
We are consulting on proposals that, where companies make non-direct debit charges very clear and obvious, competition, not Ofcom, will decide how much they will be.
Where companies don’t make it obvious what non-direct debit charges are, Ofcom will make sure that prices are set fairly and relate to the extra costs of collecting payments.
Extra costs might include: direct costs of processing payments; and costs that arise because when payment is not automated, consumers are more likely to forget to pay on time.
Q11. Can suppliers charge what they like for non-DD?
No.
Setting prices for the main goods or services under a contract is a commercial decision for suppliers. Ofcom does not generally set retail charges (just as regulators in other sectors do not generally set prices). Where consumers have a choice of providers they can shop around. Competition – not regulation – will mean charges are set at a reasonable level.
But, if some companies don’t make these charges obvious (so they’re not part of the price for the main service), consumers are unlikely to shop around on the basis of these, and competition may not work in the same way. The need to protect consumers from ‘small print’ charges is recognised by the Regulations [1] which say such charges must be set fairly. Ofcom’s guidance will set out how we think the Regulations apply and what we expect suppliers to do.
[1] The Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations).
Q12. What help is available for low-income consumers who may struggle to afford telephone services?
We have looked in particular at low income consumers given that:
- low income groups may be disproportionately likely to incur some of these charges. For example low income consumers are more likely not to pay by direct debit than other groups; and
- where a low income consumer incurs a charge, it represents a higher proportion of their income.
Ofcom is consulting on two reasons why we might be worried about low income consumers, even if charges are transparent and fair: first, do they stop people having a service at all; and second, is it right if low income consumers end up paying more for things.
Ofcom ensures low income consumers have access to essential phone services via social schemes provided by BT (and, in Hull, Kingston Communications) which help make sure that having a phone is affordable for everyone. From mid 2008, BT will offer a new service – BT Basic – which offers a low cost service for home phone services to those who are in receipt of certain Government benefits. BT Basic will not have a non direct debit charge and will be available to consumers who have a pre pay mobile phone and broadband services.
Ofcom is currently discussing with Kingston the possibility of Kingston changing its pricing for its Social Access package so there is a single price irrespective of the payment method.
For low income consumers who use the phone a lot and do not qualify for the social schemes the added cost is not usually so high that it is excluding people from phone services.
Those kinds of social schemes don’t currently extend to broadband services and Ofcom recognises that access to broadband for low income consumers is something we will need to think about further in future.
We also recognise that there are wider concerns around the fact that low income consumers often pay more for essential products and services than higher income groups. There are many examples of this, for example:
- charging different amounts according to payment method is very common for gas and electricity;
- low income consumers pay high interest charges if they want to borrow money; and
- insurance is often higher for people living in less well off areas.
The fact that people on low incomes often end up paying more for a wide range of things is not something that Ofcom can solve on our own. We believe that this is also an issue for Government and Parliament.
Q13. What about people who don’t have a bank account?
Ofcom recognises that consumers on low incomes may have little choice but to pay non-direct debit charges because they don’t have a bank account, or only have an account which doesn’t allow direct debit, or simply because paying by direct debit is not the best way of them managing their finances.
It is therefore important that companies comply with the Regulations [1] and set their terms fairly. See question 8 for Ofcom’s views on what this means.
See question 12 for the proposals on which Ofcom is consulting on this issue.
[1] The Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations).
Q14. What is Ofcom’s view of early termination charges?
Customers have told us that:
- they don’t see why they should be locked in to a contract for a fixed-line phone at home, or pay extra charges if they want to cancel early. However, they can see the reasoning for a minimum period when, for example, they receive a free mobile handset; and
- they’re often not aware that fixed-line phones come with a contract, although more people expect one with a mobile.
Customers are more split about whether being locked into a contract for broadband and pay TV is reasonable.
The companies say that they ask you to agree to a minimum term so they can get back some of the money they’ve spent to sign you up. These costs may include:
- the cost of free or cheaper equipment, such as a mobile handset, a broadband modem or a satellite dish;
- the cost of free or cheaper installation, such as putting a satellite dish on your roof or connecting you up to cable; and
- industry costs which the supplier has to pay when they take you on as a new customer.
By charging you for cancelling early, companies believe you’ll want to stay with them for the minimum period. If not, they can at least get back any costs that your monthly payments haven’t yet covered.
We are consulting on proposals which accept the idea that minimum contract periods can help spread those upfront costs, while early cancellation charges should not higher than they need to be. These charges can add to the cost of switching companies and, in the process, harm healthy competition. We are proposing that:
- companies must be clearer. Their customers must know what they’re signing up to, and the costs they must pay if they choose to break the deal;
- a customer should never have to pay more than the payments left on his or her contract;
- companies should not make more money from a customer who cancels early than from one who stays to the end of the period. If a supplier saves money or can take action to save money when a customer stops taking the service, these savings should be used to cut the charges for cancelling early; and
- companies can only work out charges based on the basic contract the customer has signed. They cannot include possible profits from other services the customer can purchase from the supplier.
These rules particularly affect the cancellation charges for phone, mobile and internet services. We are consulting on proposals that should see the costs of cancelling early come down significantly in many cases.
Separately to this, some consumers may feel that if they have had very bad service, they should be able to cancel without paying any sort of charge. These kinds of cases can only be considered case by case. If the customer and the company cannot agree, the customer can take the dispute to the Alternative Dispute Resolution (ADR) Scheme of which the company is a member (currently there are two ADR Schemes - Otelo and CISAS).
Note: The ADR Schemes make a fair and impartial decision about the dispute between the company and the customer. Depending on the circumstances of the matter, the ADR Scheme may order the company to fix the problem and, if needed, pay compensation. You should find details of the company’s ADR scheme on the back of your phone bill, in the company's Complaints Code of Practice or available from the company’s customer services staff.
Q15. I’ve had to cancel my services whilst in contract for reasons out of my control, should I still have to pay the early termination charges?
In many cases, it is likely that early termination charges will still be payable, though they should be set at a fair level following our guidance.
This is because when consumers enter into contracts with suppliers they make certain commitments, and in a "fair" contract there will be no significant imbalance between the consumer and the supplier. Occasionally, there may be circumstances in which consumers are unable to fulfil those commitments, and they may need to terminate a contract before the minimum period has elapsed. If the contract and any early termination charges are fair, the supplier may insist on consumers fulfilling their commitments or paying the charges.
This does, of course, work both ways. If the supplier is unable to fulfil its own commitments, it may be required to pay compensation to consumers.
However, if you think there are special circumstances in your case, it is always worth discussing this with your supplier.
Q16. What is Ofcom’s view of subsequent minimum contract periods?
Customers sometimes find that if they change their contract in any way, they can face an extra minimum contract period (and another set of cancellation charges). This can happen:
- when you move house;
- when you want to move to another package (e.g. a different mobile phone plan, a different broadband speed or a different pay TV package);
- when you want to combine several services from one supplier; and
- when you want a new mobile handset.
We are consulting on proposals that an extra minimum contract period may be fair when companies have to lay out more money in advance. However, this should only happen when customers are clearly getting a benefit for it. If not, the charges act as a barrier to switching companies.
We are proposing that:
- companies must make it very clear in the information they provide to consumers when they sign up, why they may insist on a further minimum contract period at some point in the future;
- an extra minimum contract period is only reasonable when there are clear benefits to the customer, and costs to the provider;
- the length of an extra minimum contract period should be proportionate to the additional costs faced by the provider;
- any new cancellation charges should be based on the same rules about fairness as the first contract;
- extra minimum contract periods are not acceptable when a customer is upgrading to a new package (which costs the providers little or nothing); and
- extra minimum contract periods are not acceptable when a customer is downgrading to a new package (which again costs the providers little or nothing). This assumes the customer has completed an initial minimum contract period.
This will mostly affect customers with fixed-line home phones and broadband services. They will have more freedom to change their package with their supplier without having to worry about another minimum contract period.
Q17. What is Ofcom’s view on late payment fees?
Customers have told us that:
- they’re worried that they can be hit with extra charges when they pay late. Often, they feel this happens before they’ve had a fair chance to pay the bill;
- they feel the charges are too high; and
- often, they don’t even know they risk these charges in the first place.
Companies have told us that these charges encourage people to pay on time. They also say that these charges are only paid by the people likely to cost the company money, rather than spreading them across the ‘good’ customers who pay on time.
These costs include:
- sending out reminder letters or making calls to customers to remind them to pay;
- administrative costs when a cheque or a Direct Debit doesn’t go through;
- interest, because the company is getting its money later than it should; and
- the industry costs that a company has to pay if it takes away part of a customer’s service, and then returns it to normal later. (For example, only allowing incoming calls on a phone until a bill has been paid).
- some also say that customers who pay very late, or whose payments don’t go through, are more likely to end up paying nothing at all. They say the extra costs of bad debt should be spread among these ‘riskier’ customers.
Ofcom is consulting on proposals that:
- companies need to make their customers much more aware that they risk these extra charges;
- a charge should only be made if the customer has had a fair chance to pay the bill;
- these charges are not part of the advertised price, and should only reflect the true extra cost of collecting money;
- fair charges are especially important to customers on low incomes; and
- general costs of bad debt should not be included in setting late payment charges.
Looking at typical costs, many companies are playing fair, but our proposals will, if adopted, lead to some companies cutting their charges. However, the principles we propose to adopt will stop all companies making unfair charges in the future.
Q18. I’ve been in hospital and unable to pay my bills, should I still have to pay a late payment charge?
In many cases, it is likely that the late payment charge will still be payable, though they should be set at a fair level.
This is because when consumers enter into contracts with suppliers they make certain commitments, and in a "fair" contract there will be no significant imbalance between the consumer and the supplier. If the contract and any late payment charges are fair, the supplier may insist on consumers paying the charges.
This does, of course, work both ways. If the supplier is unable to fulfil its own commitments, it may be required to pay compensation to consumers.
However, if you think there are special circumstances in your case, it is always worth discussing this with your supplier.
Q19. What amount does Ofcom deem an acceptable late payment fee?
The draft guidance on which we are consulting sets out the principles by which we propose a fair charge should be set. It does not set a specific charge which Ofcom says is fair or unfair.
This is because, in our research, we have seen a range of late payment charges. It is difficult to set a level at which we think any charge is fair or unfair, partly because suppliers' costs vary, and also because their practices are different. For example, some suppliers may not charge for a payment failure, and will instead charge just for late payment.
So, the draft guidance sets out the principles by which we propose these charges must be set. They must be transparent to consumers within the contract at the point of sale. They must charge consumers only the direct costs incurred by the supplier as a result of the late payment (like the costs for chasing payments and for postage). And, they should only be levied after consumers have had a reasonable opportunity to pay their bills, taking into account possible postal delays as well as reasonable absence from home, and have failed to pay. We will consider any complaints about the level of these (or other) charges.
Q20. What is Ofcom’s view of the other additional charges and contract terms Ofcom has looked at?
Full details of our consultation can be found in Related Items.Q21. How much do communications providers make from these charges?
Ofcom does not believe that suppliers use these charges to generate large amounts of revenue. Ofcom’s concern is the way some consumers could pay end up paying a disproportionately high amount compared to others.
What is crucial is that all charges are clear to consumers so they know what they are paying for, and can make proper choices on the basis of this information. And, that charges which are not part of the price for the main service are set fairly.
Q22. Are consumers going to be able to claim money back if the review sees the charge as unjustified? Can I withhold payment until the final decision is made?
We see the main benefit of this work as enabling suppliers to bring their terms into line with the Regulations [1], and we are proposing to allow them three months to do so. There is little case law on the application of the Regulations, and our guidance should provide much greater clarity on what is acceptable or unacceptable in the future.
This doesn't mean to say that consumers cannot claim back money which they have already paid, if they feel that they have paid too much. But, that would be for a court to decide in any particular case. Ofcom’s guidance cannot force a supplier to refund any charges that have already been paid.
[1] The Unfair Terms in Consumer Contracts Regulations 1999 (the Regulations).
Q23. Why does Ofcom need to consult and what might change?
We generally consult when we propose to issue guidance. And, here, the issues are complex. We are keen to seek views from a wide range of stakeholders.
We will assess responses to the consultation carefully and take them into account in producing a final statement and guidance for publication.
It is possible, for example, that as a result of consultation:
- We will reconsider our views of the law (for example, if new legal arguments are put forward)
- We will reconsider out priorities for enforcement
- We will retain our view of what we can do under the Regulations, but we will reconsider whether there are other legal instruments which may be appropriate (see next question) and/or will engage with Government to consider whether Ofcom has the right powers.
Q24. When will we expect to see an outcome of the consultation?
We published our consultation on the “Ofcom review of additional charges” on 28 February 2008. We are allowing 10 weeks' consultation, meaning responses are requested by 5pm on 8 May 2008.
Depending on the outcome of our consultation, we will aim to publish our final statement and guidance by autumn 2008.
Once our statement is published we expect to allow a period (currently proposed to be 3 months) for suppliers after the publication of the final Guidance, during which they can review their terms and conditions and charges and where necessary change them.
Q25. How can I make my views known?
Because of the widespread concern about extra charges, we are holding a consultation on the issues raised in this booklet, and the Ofcom Guidance, for a period of 10 weeks.
We would welcome your views. Please e-mail them to us at: additional.charges@ofcom.org.uk
If possible, please attach your response as a Microsoft Word document. Please also attach the response cover sheet, which you can download separately from the ‘Consultations’ section of our website at: http://www.ofcom.org.uk/consult/244504/
You can also post or fax your response, marked ‘Additional Charges - Consultation’ to:
Consumer Policy
Ofcom
Riverside House
2A Southwark Bridge Road
London
SE1 9HA.
Fax: 020 7981 3706
The closing date for responses is 8 May 2008, at 5pm.
To simplify the process, we do not usually acknowledge that we have received your response.
We think it is important that anyone interested in our consultation can see the views we receive. For this reason, we will put all responses on our website when the consultation period is over. We will treat your response as confidential only if you ask us to.
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