Summary
Citizens Advice wholeheartedly supports Ofcom’s proposal to introduce a new General Condition that will apply to all mobile service providers to combat a range of unacceptable sales and marketing activities. However, for any new Condition to successfully address the poor practices that beset the mobile phone market at present, Ofcom must:
- implement change quickly;
- maintain excellent intelligence about sales and marketing activities (e.g. through collection of relevant industry data, analysis of customer complaint numbers, liaison with consumer organisations etc)
- take enforcement action promptly;
- create a strong and enforceable linkage, in terms of legal responsibility to consumers, across the supply chain.
We also support proposals to improve the information provided at the point of sale and to prohibit unfair terms, though it is disappointing that it is necessary to introduce a General Condition to force providers not to be dishonest, misleading or deceptive.
Of the options outlined by Ofcom to tackle onerous/misleading cashback terms and conditions, we recommend that the mobile service providers pay cashback to the customer directly (with reductions in commission payments to independent retailers) – referred to as Option (vii) in Ofcom’s consultation document. In our opinion, this would achieve shared responsibility for the customer between the service provider and the retailer, force the service provider to take an active interest in the type and volume of contracts offered by retailer and, crucially, would also mean that customers’ cashback payments would be unaffected by retailer insolvencies.
Introduction
The Citizens Advice Bureaux (CAB) network is the largest independent network of free advice centres in Europe, providing advice from over 3,200 outlets throughout Wales, England and Northern Ireland. We provide advice from a range of outlets, including GPs’ surgeries, hospitals, community centres, county courts and magistrates courts, and mobile services both in rural areas and to serve particular dispersed groups.
The Citizens Advice service provides free, independent, confidential and impartial advice to everyone on their rights and responsibilities. It values diversity, promotes equality and challenges discrimination.
The service aims:
- To provide the advice people need for the problems they face; and
- To improve the policies and practices that affect people’s lives.
In 2006-2007 the CAB service in England and Wales dealt with 5.7 million enquiries in total. Of these 8,458 concerned mobile phone problems and an additional 52,298 were about telecoms debt. The enquiries about mobile phone problems included substantial proportions on mis-selling (12%); cancellation and withdrawal (19%) and 24% on complaints and redress.
General comments
Citizens Advice supports Ofcom’s proposal to introduce a new General Condition that will apply to all mobile service providers to combat a range of unacceptable sales and marketing activities. In our view, such decisive action is long overdue.
At the root of mis-selling are two common elements: (i) commission-based payments to sales personnel; and (ii) a focus on numerical targets rather than the quality or appropriateness of contracts. Within this context, regulation becomes necessary to protect consumers.
Citizens Advice has highlighted problems with sales and marketing activities for mobile phones on numerous occasions and almost exactly one year ago Citizens Advice raised these concerns in its response to an Ofcom consultation on ‘Protecting consumers from mis-selling of telecommunications services’. In our response, we argued strongly that protections offered to fixed-line services should be extended to mobile phone providers. Unfortunately, our recommendation was not taken up and mobile phone providers were given one more chance to put their house in order via the introduction of a voluntary code of practice.
By Ofcom’s own admission the self-regulatory approach has failed to bring about an adequate reduction in consumer complaints or harm. Indeed, Ofcom report in their consultation document that, in terms of complaints about mobile mis-selling and slamming made to the Ofcom Advisory Team (OAT), “there has been no significant decrease since the voluntary code was introduced”. The failure of the voluntary initiative to address serious shortcomings in the mobile market has condemned large numbers of consumers to experience financial harm, distress and significant inconvenience. Ofcom estimating that cashback deals alone generated potential consumer harm in the range of £50-60 million over a one to two year period.
Yet the failure of a voluntary code to adequately address issues of mis-selling and dubious marketing practices is not new. Many of the dubious sales and marketing practices appear to have migrated across from the fuel sector. And in the fixed-line sector, a voluntary sales and marketing code of practice was introduced in July 2003, yet when Ofcom reviewed its operation it concluded that “the voluntary code was not reducing instances of mis-selling and slamming or providing adequate protection to consumers”. It was not until the introduction of a General Condition in 2005 that there was a positive reduction in the volumes of mis-selling and instances of slamming.
It is exceedingly disappointing that lessons were not learned by Ofcom following mis-selling in the fixed-line telephony market, which ultimately required Ofcom to take remedial action in the form of the introduction of a General Condition. This failure to learn from past mistakes has, in effect, allowed history to repeat itself in the mobile phone market.
Given the failure of the voluntary approach, we are therefore very supportive of Ofcom’s proposal to introduce a new General Condition to tackle general mis-selling and onerous/misleading cashback terms and conditions. We have a number of comments about what this General Condition should cover. Further details of our recommendations are provided in the responses to the specific questions posed in Ofcom’s consultation document.
Responses to specific questions
Question 1: Do you consider there are other options to tackle mis-selling in the mobile market we have not identified in our review?
We consider that Ofcom has identified the main options to tackle mis-selling in the mobile market. However, in our opinion there may be merit in exploring joined up enforcement action with the Office of Fair Trading (OFT) and Trading Standards, who can enforce consumer protection legislation against retailers. In particular they could use the new Consumer Protection against Unfair Business Practices Regulations which come into force in May 2008 to tackle mis-selling and misleading cashback offers.
Question 2: Do you agree with our preferred option to tackle mis-selling? If not, please explain your preferred approach and reasons.
As we state in our general comments, we consider that Ofcom’s proposal to take decisive regulatory action n this area is very much overdue. The existing voluntary code has failed to address the problem of mis-selling, and the precedent set in the fixed-line market suggests that complaints only fall after formal regulation has been introduced. We are therefore fully supportive of the proposal to tackle general mobile mis-selling, including slamming, by regulating the mobile service provider through a General Condition.
Question 3: Do you consider there are other options to tackle issues with onerous/misleading cashback terms and conditions we have not identified in our review?
Question 4: Do you agree with our preferred option to tackle onerous / misleading cashback terms and conditions? If not, please explain your preferred approach and reasons.
We support Ofcom introducing a General Condition to deal with the problem of onerous and/or misleading cashback terms, since this would enable Ofcom to take action against suppliers that fail to adhere to the new conditions. In our opinion, the threat of financial penalties must outweigh the competitive advantage or profits generated by poor practices.
However, while we support Ofcom introducing a General Condition to deal with problems with cash back offers, we consider that it would be better for the mobile service providers pay cashback to the customer directly (with reductions in commission payments to independent retailers) – referred to as Option (vii) in Ofcom’s consultation document.
In our opinion, this would greatly simplify the whole process, since there would be no need for a separate contract between the independent retailer and the customer for the cashback component of the deal. In the cases reported to CABx, clients often appear surprised and confused that they have actually entered into a contract with both the mobile service provider and the independent retailer.
A CAB in Warwickshire reported that a client was coldcalled by a retailer who told him that for £1.99 pm he could have a mobile phone, and then would pay £40 pm for unlimited calls. He was also told that after 18 months they would repay him £220 cashback. He agreed to the contract. The next day he changed his mind and phoned them to cancel the deal. On April 18 he was in his bank when he found that he had been debited £40. He complained and the bank refunded it and a further £50 debited the following month. A handset arrived but he refused to accept delivery and it was taken away by the Postman, and the retailer acknowledged this by letter. In July he received a letter from the bank who said they were going to take back the two rebates. It was only then that the client realised that the contract he had entered into was not with the retailer but the airtime provider. The retailer had taken their commission and ignored the cooling of period.
A Lancashire CAB reported that a client had a cashback contract with a mobile phone retailer who had recently gone into receivership. Under the scheme she had taken out two phones - one on a 10 month promotion for £35.00 per month and one on a 12 month promotion for £42.00 per month. The client was supposed to receive the same amounts in the form of cashback following payment by herself to the network service provider. However she had received only one cashback payment and could not now contact the company. She had a letter from another company saying they were taking over the insolvent retailer and becoming a public listed company , but there were no contact details for this company on the letter. The client, who was on a low wage, could not afford the payments to the airtime provider.
Question 5: Do you consider there are other options to tackle issues with retailer insolvency we have not identified in our review?
Question 6: Do you agree with our preferred option to tackle retailer insolvency? If not, please explain your preferred approach and reasons.
We do not agree with Ofcom’s preferred approach to tackle retailer insolvency. We are not convinced that requiring mobile service providers to carry out due diligence in respect of independent retailers is sufficient to protect consumers, particularly since Ofcom reports that “most mobile operators already undertake checks”, yet this has signally failed to stop a spate of insolvencies among independent retailers.
While requiring mobile service providers to undertake due diligence activities could certainly contribute to providing a clearer picture of the activities of independent retailers, we do not think that on their own they are sufficient. Simply mandating the service provider to undertake credit reference checks or check the independent retailer’s history with Trading Standards will not necessarily provide information about specific dubious deals. And what is to stop a dishonest retailer providing false information about their business model to the service provider? And in this situation, where would responsibility lie if the retailer went bust, and who would compensate consumers?
Moreover, in requiring mobile service providers to carry our due diligence, it remains unclear what level of oversight would be required, how this would be carried out and how often it would need to be reviewed. Given that the current relationship between service providers and retailers does not appear to involve extensive communication, we are unsure how this proposed requirement would work in practice.
Citizens Advice believes that Ofcom must require the mobile service providers to pay cashback to the customer directly (with reductions in commission payments to independent retailers. This arrangement would mean that even following insolvencies among independent retailers, customers would not lose out. In addition, since mobile service providers would be paying out cashback directly they would be much more aware of the types of deals being entered into by independent retailers, and would have a strong interest in ensuring these were properly structured and supportable. This would create equivalent consumer protection for mobile phone customers to that enjoyed by borrowers under section 75 of the Consumer Credit Act 1974. Where credit is provided as part of an agreement to buy goods or services, then both the credit provider and the supplier of the goods and services are jointly and severally liable for ensuring that the goods or services are properly represented and the protect consumers against insolvency of the business providing the goods and services.
Question 7: We would like to have your views on the proposals set out in Section 9:
Could you give an indication of the costs of keeping records for an additional 6 months?Do you think a confirmation letter would help in tackling mis-selling and cashback issues?What kind of information do you think such a letter should contain for it to be effective?For retailers selling services via telesales could you give us an indication of costs and time to implement this proposal?Could you give an indication of costs and the feasibility of the due diligence requirements, including the requirement where we propose all current independent retailers to be checked within 12 months from the GC coming into force?Could you give us your views on the proposed transition period of 2 months to implement the provisions of the GC?
A number of these questions are obviously intended for mobile service providers so we are unable to provide responses. However, we consider that a confirmation letter would help to provide basic information to customers about the contract they had entered into by telephone. At present CABx report cases where clients never receive written contracts and end up being duped or paying significantly more for mobile phones than the amounts quoted in the original telephone conversations.
A CAB in Leicestershire reported that a man was approached by a retailer who apparently offered him an upgrade of his mobile phone. The contract and direct debit agreement were made over phone and no written contract was received to enable him to check its terms. The client was not told that this agreement was additional and would run alongside his original contract, nor that he should cancel his first contract. Money was taken out of his bank account, but refunded when he thought this was as a result of fraud. The client told the CAB that he had not used the phone, but was now being sent letters from a debt collection agency threatening court action to recover £520.70 owed.
A CAB in London reported that a client purchased a mobile phone contract because the retailer told him that he would be entitled to a refund of charges after a stated period of time. By the time the refund was due, the retailer had gone out of business. The client had written to and phoned the airtime provider about the refund and how he was induced to purchase this product but had had no substantive reply. The client had not kept up payments to the airtime provider who insisted that he was committed to an 18 month contract which he had not received.
A Staffordshire CAB reported that a young woman who already had an mobile phone contract, was coldcalled in October 2006 with offer of a new contract - £45 per month for 18 months. She asked her father to be guarantor and set up a direct payment from her account. She didn't realise the contract was with a different airtime provider until the phone arrived, but there was no written contract. The first bill was in the father's name. She was told she had no credit record but they would change it to her name after four months payments. She phoned and they told her they needed 12 months before changing it to her name.
A Surrey CAB reported that a woman was approached in the street by a mobile phone retail salesman who assured her that his firm could beat her current contract price for her mobile phone. The client was not told of the length of new contract and in fact was misled about the cost. The client signed the contract. Although the new contract was cheaper for the first year, it was for 18 months, and over the second six months the client paid so much that over the whole period, the cost was significantly more (nearly £200) than her previous contract. Also, the new contract included music, which she never used. The client had written numerous times to the retailer about the contract terms. They insisted that as she had signed the contract, there was nothing they could do.
Although such letters will help to alert customers to the terms of the contract that they are entering into, it will also be necessary to ensure that the process for cancelling the contract, should the customer wish to do so, is straightforward and simple. In too many cases, mobile phone companies can place obstacles in the way of cancelling contracts and returning phones.
A CAB in Oxfordshire reported that a client had taken out a contract with a retailer for a mobile phone. She paid £50 but the phones did not work. However she thought she had bought the phones from the airtime provider who continued to send her bills. When she phoned them, , she got no response. She returned the phones by recorded delivery to the retailer, but they alleged that, when the handsets arrived, they were signed for by someone whose name they do not recognise so it was nothing to do with them. At no stage were the rules of distance selling explained to the client by either party.
A CAB in Hertfordshire reported that a woman was coldcalled by a mobile phone retailer. She thought the phone call was from her current airtime provider. She signed a direct debit but had now cancelled it, returned the handset to the retailer and cancelled the contract in writing within seven days, as required by the distance selling legislation. The client subsequently received a letter from the airtime provider regarding cancellation, but asking her to ring the retailer to confirm cancellation. The client had tried to ring many times but only got an answering machine and her calls were not returned. Even when the bureau rang the airtime provider, they insisted the client needed to ring the retailer to discuss cancellation of the contract.
Other comments
Information at point of sale
We are supportive of proposals to improve the information provided at the point of sale and to prohibit unfair terms, which are detailed in the draft General Condition 23.5. However, we note that the draft Guidelines in respect of this (paragraphs A7.17 – A7.19) suggest that mobile service providers “may wish to consider whether to require sales records to include an explicit check of the customer’s identity, age and/or address (for example, MSPs may wish to ask for utility bills, a copy of a passport or driving licence)”.
Ofcom should be aware that many people on low incomes may be unable to provide such documents since they may not drive, may not travel abroad and may be living in rented accommodation so may not receive utility bills in their name. We would urge Ofcom and mobile service providers to show a much greater degree of flexibility in verifying identification and address, and suggest that it may be helpful to consult the Joint Money Laundering Steering Group’s guidance for the UK financial sector paragraphs 5.3.98 – 5.3.114 on alternative documents to prove identify and address for people who may be financially excluded.
Wording of new general condition
We are also concerned that the proposed new General Condition frequently uses the word ‘endeavour’ in respect of what should be requirements. The use of the word “endeavour” indicates that, provided the service provider has made some effort towards the obligation ,Ofcom will not be able to take action for contravention of the General Condition. This is exactly the language used in OFGEM’s Standard Licence Conditions (SLC) for fuel companies at SLC 48 on marketing. For example, the General Condition proposed by Ofgem rightly highlight the need for consumers to have written information about contracts made during a sales call in time for them to use their distance selling cancellation rights. The requirement for this, and other requirements proposed, must be more definite. Citizens Advice recommends that the requirements of the new General Condition replace the word ‘endeavour’ with MUST.
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