Ofcom review of additional charges

New rules came into force on 13 January 2018 that have changed the Consumer Rights (Payment Surcharges) Regulations 2012. See our additional charges page for further information.

We are reviewing and, if necessary, updating the Guidance on Additional Charges in light of the Supreme Court's judgment in the Bank Charges case, The Office of Fair Trading v Abbey National and others (https://www.supremecourt.uk/). 

This does not affect consumers' and service providers' continuing obligations under the Unfair Terms in Consumer Contracts Regulations 1999 (the "UTCCRs"). We will continue to enforce the UTCCRs, as necessary and appropriate, pending publication of any further guidance or other information in this area. Consumers who have concerns about the use of unfair terms in contracts for communications services should continue to raise them with Ofcom in the usual way.

Two important changes have been introduced since the FAQs below were added to the website.

The Consumer Rights (Payment Surcharges) Regulations 2012 came into force on 6 April 2013 and apply to contracts entered into on or after that date. They say that if a company charges a residential customer for using a particular payment method, the charge must do no more than cover the costs the company incurs in processing the payment (they do not apply to business customers). If you are a residential consumer concerned about the amount you have paid for a payment surcharge, you should first raise your concerns with your communications service provider. See the Payment Surcharge Regulations.

Ofcom banned automatically renewable contracts for residential customers or small business customers in the fixed line and broadband sectors. Ofcom required these to be removed completely by 31 December 2012. See automatically renewable contracts.

1. 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 you 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; and
• for itemised or paper billing.

The statement and our guidance also cover a number of other restrictive contractual terms which affect consumers (and 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); and
• minimum notice periods (which may lead to a consumer paying for service for a period even when they have stopped using it).

2. When did communications providers introduce these terms and charges?

Most of these terms and 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 when consumers want to change supplier they will have to pay an early termination charge;
• non-direct debit charges have tended to increase; and
• charges for itemised billing / paper bills are relatively new, and are becoming more widely applied.

3. How are consumers informed about them?

In general, information about these charges has been available in the past, but has not always been easy to find.

We are asking suppliers of communication services to do more to make their customers aware of them. And where they are terms in the small print, we want them to be fair.

4. Why did Ofcom decide to look into additional charges?

Ofcom has received many complaints about these additional charges.

A lot of these complaints have been about non direct debit charges. Weve had a lot of letters from MPs about this, and there have been a number of newspaper articles.

However, weve also had complaints about other extra charges, in particular charges for terminating a contract early. Weve had complaints about a number of different suppliers.

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 its our job to make sure that companies play fair, and that ordinary customers know what to look out for.

Weve 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 cant set up a direct debit.

5. What outcome has Ofcom reached about additional charges? [Ofcom April 2013 update: see also note at the top of these FAQs about new Regulations which have since been introduced to Payment Surcharges]

We have looked at the way the existing Unfair Terms in Consumer Contract Regulations 1999 (the Regulations) apply to some terms in contracts for communications services between suppliers and consumers.

Our guidance aims to ensure that communications suppliers are aware of, understand and comply with their obligations under the Regulations. It sets out what Ofcom considers those obligations to be and the approach we expect to take in performing our obligations and exercising our powers under the Regulations.

We are not banning these terms and charges. But we expect them to be made clear to consumers and to be fair. We think:

• Some terms and charges may form part of the price for the service if they are presented to consumers prominently and in plain intelligible language.
• Other (incidental) terms and charges must be fair. For charges like non-direct debit charges, this is likely to mean they should only reflect direct costs (see question 6 below). Others, like early termination charges, should also be limited (consumers who end contracts early should never have to pay more than the payments left under the contract - in fact they should often pay less, to reflect costs providers save because the contract ends early).

We expect that this guidance (together with Ofcoms enforcement activity) will help give consumers appropriate protection alongside the benefits of competition.

6. Why hasn't Ofcom banned non-Direct Debit charges? [Ofcom April 2013 update: new Regulations have since been introduced which apply to Payment Surcharges- see note at the top of these FAQs for more information]

The law does not allow us simply to ban additional charges such as non-direct debit charges.

However, suppliers must be clearer on what customers will actually pay. We think consumers should be able to assess the true costs of what's on offer, including any extra charges they have to pay.

When suppliers advertise prices, they may set out non-direct debit charges in such a prominent and transparent way that consumers see them as part of the price for the services they are buying. Where this is so, normal competition and not regulation will drive prices on behalf of consumers.

But, if a supplier does not make these charges prominent and transparent enough, and consumers see them as separate, additional charges, we think they should reflect direct costs only. They should only include the company's extra costs of collecting normal payments and not, for example, the cost of bad debts.

7. Are discounts for paying by direct debit more acceptable? [Ofcom April 2013 update: new Regulations have since been introduced which apply to Payment Surcharges- see note at the top of these FAQs for more information]

Non-direct debit charges can be described by suppliers as discounts for paying by direct debit or as an additional charge for paying by other means. And some consumers have told us they don't mind there being an incentive to pay by direct debit, but said that surely its wrong for suppliers to charge more for people who want to pay cash.

Our position is that this doesn't make any difference. If consumers have the option, for example, to pay 15 a month (direct debit) or 18 a month (non-direct debit) our view is that the issues remain the same, irrespective of whether the 3 difference is called an additional charge or a discount. The same rules apply in both cases.

8. How much does it actually cost providers to collect non-Direct Debits payments? [Ofcom April 2013 update: new Regulations have since been introduced which apply to Payment Surcharges- see note at the top of these FAQs for more information]

Suppliers incur greater costs where consumers don't pay by direct debit and we think 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.

Currently, suppliers tend to charge around 1-5 a month for payment by cheque or cash (although not all suppliers charge).

In our view, unless they are so clear consumers will regard them as part of the price for the services they are buying, not separate additional charges, these charges must relate to direct costs only. We expect that, in some cases, non direct debit charges will become more prominent and/or they might be reduced.

9. What help is available for low-income consumers? [Ofcom April 2013 update: new Regulations have since been introduced which apply to Payment Surcharges- see note at the top of these FAQs for more information]

The Regulations do not give special protection to any particular group, like low-income consumers. But, our wider review of additional charges has looked at the position of these 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.

Our primary concern for low income consumers remains fixed telephony services. They are recognised as being important for social inclusion, as reflected in the Universal Service Order for BT and Kingston and their social telephony schemes:

• BT Basic was launched in October 2008, and does not have a non-DD charge; and
• Kingston removed the charge from their social telephony products, after the publication of our consultation document on additional charges in February 2008.

For those low income consumers not eligible for social telephony schemes, we believe competition and consumer choice (shopping around) will provide the appropriate protection. We are aware that since we published our consultation document at least one other major supplier has removed its non-DD charge for all consumers.

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 often 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.

10. What about people who don't have a bank account so cant pay by Direct Debit? [Ofcom April 2013 update: new Regulations have since been introduced which apply to Payment Surcharges- see note at the top of these FAQs for more information]

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 and where these charges are in the small print, that they set their terms fairly.

11. I've had to cancel my service whilst in contract for reasons out of my control, should I have to pay a charge for this?

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. 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.

If you think there are special circumstances in your case, it is always worth discussing this with your supplier.

12. I've been in hospital and unable to pay my bills, should I still have to pay late payment charges?

In many cases like this it is likely that late payment charges will still be payable, though they should be set at a fair level following our guidance.

But, your suppliers terms and conditions may set out exceptional circumstances where those charges are not payable. Or, it may agree to waive any charges if there are good reasons for late payment. Again, it is always worth discussing this with your supplier.

13. What's the maximum amount a late payment charge should be?

Ofcom is not setting the level of charges. However, the Regulations require that these charges are set fairly and in our view they should only reflect direct costs.

This is likely to mean that late payment charges should only seek to recover costs like the limited administrative costs of chasing and collecting late payments (and any lost interest on unpaid amounts).

14. I don't have access to the internet so I cant view my itemised bill online. Why should I have to pay to receive a paper one?

Suppliers incur costs providing consumers with paper bills. In our view, it is reasonable for suppliers to recover those costs.

However, this charge should be set fairly and in our view should only seek to recover the costs incurred in providing the bill. We do not think suppliers should charge customers more than 1.50 per paper bill.

We are aware that some providers offer/are considering offering a number of ways for consumers to access their bills. These include online as well as phone-based billing services.

15. My provider has tied me into another 12 month contract without informing me are they allowed to do this? [Ofcom April 2013 update: Ofcom has since taken action to remove automatically renewable contracts where residential or small business customers have fixed line services- see note at top of these FAQs]

In our view, it is important that consumers should choose to enter contracts freely rather than finding themselves bound as a result of doing nothing.

Our concern about automatic renewal terms is that they may be used to exploit a consumers ignorance or inertia to tie them in and prevent them having the option of switching to another supplier.

We consider that such renewal terms are more likely to be unfair where one or more of the following applies:

• the renewal term itself is not transparent in the contract at the point of sale;
• the supplier doesn't promise to send a reminder notice at a reasonable time before the renewal term is to take effect;
• the terms do not provide for a clear and easy to use opt-out mechanism, without unnecessary formal or procedural requirements;
• there is no cost to the supplier and no benefit to the consumer from the renewed obligation the consumer takes on;
• there are other terms which seek to restrict the chance to opt-out or require too long a notice period; and/or
• the charge for terminating the contract early is unfair (or so high that the consumer doesn't effectively have the right to end the contract).

We also think it is important any reminder notice relating to automatic renewal is genuinely aimed at informing the consumer and prompting them actively to consider whether they wish to commit to a renewed contract. For example, we think the reminder should:

• be sent at an appropriate point in time (neither too close nor too far away from the renewal date);
• be written in plain, intelligible language;
• should have the explanation about the automatic renewal as the only (or main) subject of the letter; and
• should make clear what the consumer needs to do to prevent the automatic renewal (which opt-out mechanism should be clear and easy to use).

Ofcom also considers that it is possible that there are broader policy concerns relating to automatic renewal terms and their possible impact on the market. It is possible that a term is fair under the Regulations, but nonetheless has adverse consequences for competition. These concerns are outside the scope of our guidance but they may be the subject of further Ofcom consideration.

16. I'm moving house and my provider wants to extend my contract for another 12 months are they allowed to do this? [Ofcom April 2013 update: Ofcom has since taken action to remove automatically renewable contracts where residential or small business customers have fixed line services- see note at top of these FAQs]

Following the end of an initial minimum contract period, most contracts will continue indefinitely until either the consumer or the supplier terminates it - in which case the minimum notice period will apply.

However, there are a number of circumstances which will trigger the commencement of a subsequent minimum contract period - either during the initial minimum contract period, or after it has ended.

For fixed line, broadband and pay TV, the main triggers are upgrading/downgrading the service level and moving house.

In our view, a subsequent minimum contract period like one that applies when a consumer moves home - is likely to be fair where:

• the terms explaining the events (such as a decision to upgrade or move house), that will trigger a requirement for a subsequent minimum contract period are transparent to consumers in the contract at the point of sale;
• the terms say the supplier will make it very clear to the consumer that a new minimum contract period will apply, and the length of it, at the time the consumer is considering changing the service or moving home; and
• the costs incurred by the supplier and the benefits to the consumer are in line with the subsequent minimum contract period.