Ofcom warns telcos over penalties hidden in consumer contracts

From April Ofcom will take action against any that do not comply with newly-clarified rules, it said.

Telecoms contracts must comply with the Unfair Terms in Consumer Contracts Regulations, which regulate standard terms in contracts that companies have with consumers. These terms are regulated because they are not negotiated and must be accepted by consumers if they want a product or service.

Last year Ofcom expressed concern about additional charges levied on customers for their telephone, internet and television services. It said that it feared that some charges for late bill payments, early contract termination and other activities were unfair, and that competition in the market for the services was not keeping charges low.

It has now produced guidance on these areas on what kinds of terms are fair and what are unfair. It said that companies have until April to review and change their contracts. From then it will begin to take action. Ofcom has the power to seek enforcement orders against companies that do not comply with telecoms law.

The guidance covers charges for payments by methods other than direct debit; itemised billing; late payments; the early ending of contracts; and automatically renewed contracts.

Ofcom's guidance says that if companies want to levy charges that are greater than the cost to them of the customer's behaviour, they must make that clear so that market competition can take effect and people can choose alternative services if they like.

If the charges only reflect the actual cost to the business of the customer's behaviour, though, then the notices about the charges can be less prominent.

"When communications suppliers advertise prices, they may set out certain extra charges – like non-direct debit charges – in a prominent and transparent way such that the consumer recognises that they are part of the price for the services they are buying," said an Ofcom statement. "Where these extra charges are prominent and transparent enough, normal competition – and not regulation – can be the principal mechanism through which consumer interests are met."

"But if a provider does not make these charges prominent and transparent enough, and they are separate, additional charges, the charges should reflect direct costs only," it said. "Some extra charges, like late payment charges, should always reflect only the supplier’s direct costs."

Ofcom said that companies should not levy late payment charges on customers who withhold a part of their bill that is in dispute.

It also said that minimum notice periods to end a service agreement should reflect the actual time that it takes to end a contract, and that for mobile phone contracts this should be much less than 30 days.

Ofcom said that it would take action from April.

"Telecoms and pay-TV companies now have until the beginning of April to make any necessary changes to their terms and conditions," it said. "After that, Ofcom will consider the best way to make sure they comply with the law."