Protection for consumers against unexpected mid-contract price rises
22 January 2014
From tomorrow, consumers and small businesses taking out new landline, broadband or mobile contracts should be allowed to exit them without penalty if their provider increases the monthly subscription price agreed at the point of sale.
This follows an Ofcom review into the fairness of contract price terms. This found that many consumers, in particular, were caught unawares by price rises in what they believed to be fixed price contracts.
To improve protection for consumers and small businesses, Ofcom issued new Guidance for providers which takes effect from tomorrow.
It sets out that if a provider wishes to increase the monthly subscription price (or prices) agreed by the customer at point of sale, customers should be given at least one month's notice of the increase and be allowed to exit the contract without penalty.
It also states that any changes to contract terms, pricing or otherwise, must be communicated clearly and transparently.
Ofcom will monitor providers' application of the Guidance and complaints closely to assess the effectiveness of this new protection.
Ofcom will also conduct research, such as mystery shopping, to assess the transparency of contractual information given to customers by providers at the point of sale.
An updated version of the Guidance can be found here.
Checklist for consumers
Ofcom has today published advice and information on the factors consumers might want to consider before signing up to a new landline, broadband or mobile phone contract. It also sets out what Ofcom's new Guidance means for consumers.
The guide also includes a checklist of information that consumers should receive from their provider at the point of sale and is available to download via the Ofcom website here.
Claudio Pollack, Ofcom's Consumer Group Director said: "We have reached an important milestone in our work to ensure consumers and small businesses have better protection against unexpected price increases.
"Additionally, our new guide highlights important factors customers might want to consider before entering into a new contract to help them understand exactly what they are signing up to."
NOTES FOR EDITORS
- Small businesses are defined as those with fewer than 10 employees.
- Ofcom examined 1063 complaints about mid-contract price rises from 1 June 2012 to 31 August 2013. For a full breakdown of these complaints see Annex 4 of Ofcom’s decision statement published on 23 October 2013.
- The Guidance tells providers how to interpret and apply current telecoms sector rules, in relation to price increases during fixed-term contracts (i.e. contracts with a fixed-term duration e.g. two years). Under General Condition 9.6, communications providers are required to give customers a minimum of one month’s notice of any change to their contractual terms that is likely to be of ‘material detriment’ and customers must be able to withdraw from their contract penalty-free following such notice. The updated Guidance on this condition says Ofcom is likely to treat in-term increases to the core subscription price agreed at the point of sale as meeting this material detriment requirement and giving rise to the right of withdrawal. Limited exceptions include passing on increases in VAT and any other taxation charge or regulatory levy, imposed by changes in mandatory provisions laid down by Government or regulatory authorities, payment of which is compulsory. The Guidance will apply to any new fixed-term landline, broadband, and mobile contracts (including in some cases where different services are provided in “bundled” contracts) taken out by consumers and small businesses on or after 23 rd January 2014.
- The Guidance will apply to any increases to the recurring subscription price agreed at the point of sale. The recurring subscription price usually applies monthly. Ofcom regards this as the recurring price that the customer is contractually obliged to pay for a core package of price inclusive services (such as number of call minutes to certain numbers, text messages and data allowances for mobile customers) usually for a pre-determined period of time (of no more than two years for consumers). Although the Guidance does not apply to non-subscription prices, any increases to these prices will remain subject to Ofcom’s General Conditions (including General Condition 9.6) and the relevant consumer legislation. Ofcom will monitor complaints about any increases to non-subscription prices and may review its position if new evidence of consumer harm comes to light.
- The updated Guidance also makes clear that customers will still be free to choose to enter a contract where the price agreed at the point of sale is different during different periods of the contract. For example, where a provider has an introductory offer for a period of months and a different price is agreed for the remainder of the contract, or where the customer agrees to pay one price for the first year of the contract and another price for the second. The price terms must be clear and prominent enough that the customer can really be said to have agreed these kinds of tiered prices at the outset. Where they are, the customer would not be able to end the contract when the agreed price for the later period is applied.
- General Conditions (GC) 23 and 24 set out obligations on providers in respect of the sales and marketing of mobile and fixed-line telecommunications services respectively. There are obligations under GC23.5(c)(ii) and GC24.6(c)(ii) for providers to make consumers and small business customers aware of specific information at point of sale, including: a description of the service; the key charges (including minimum contract charges and any early termination charges, if applicable); payment terms; the existence of any termination right, including termination procedures; the likely date the service will be provided, in case the provision of the service is not immediate; and any minimum period of contract. Ofcom has published guidance for GC23 and GC24.
- Ofcom is the independent regulator and competition authority for the UK communications industries, with responsibilities across television, radio, telecommunications, wireless communications and postal services.
- For further information about Ofcom please visit: ofcom.org.uk. Ofcom’s news releases can be found at: media.ofcom.org.uk