HomeInsightsMobile mis-selling provokes Ofcom into action

    Mobile mis-selling provokes Ofcom into action


    Operators face fines in face of rising customer complaints

    The failure of a voluntary code of conduct addressing mobile mis-selling has provoked UK Regulator Ofcom to issue proposals that will see mobile operators fined by a maximum of 10% of relevant revenue if they are found to have engaged in mis-selling mobile services to consumers.

    Ofcom says it expects to introduce the new General Condition in the summer of 2008, after the adoption of a voluntary code of conduct in July 2007 did nothing to quell the number of consumer complaints made to Ofcom about mobile mis-selling. In fact, Ofcom said complaints had risen to over 700 a month on average after the adoption of the voluntary code, against 400+ complaints made in July 2007, the last month before the new code was adopted.

    Ofcom said most complaints are made around the issue of cashback offers, and where customers are given false or inaccurate information about their contract. Ofcom said its research showed that while 80% of customers were happy with their cashback offers, a “significant minority” were left unsatisfied.

    Ofcom’s consultation document said:

    "Some mobile service providers have ceased selling their services through certain independent retailers following compliance reviews. In addition, some retailers have ceased trading following the application of new rules under the code requiring the cashback terms to be fair.

    “However, we have found that the extent of monitoring and compliance activity varies between mobile service providers. And where monitoring and compliance activity has taken place, its main focus appears to have been to address cashback and slamming problems rather than more general mis-selling.”

    When the voluntary code was introduced last year Ofcom warned that, unless there was a significant reduction in the number of complaints, it would look into using formal regulatory measures to protect consumers.

    Ofcom's proposals outlined today, if adopted, will see the introduction of a General Condition. This is a legally enforceable rule that a communications provider must adhere to under the Communications Act 2003. The penalty for breaching a General Condition can be a fine of up to a maximum of 10 per cent of relevant turnover.

    The new General Condition will require mobile operators:
    not to engage in dishonest, misleading or deceptive conduct and to ensure that those selling their products and services similarly do not mis-sell;

    • to make sure the customer intends and is authorised to enter into a contract;
    • to make sure consumers get the information they need at the point of sale;
    • to ensure that the terms and conditions of cash back deals offered by their retailers are fair; and
    • to carry out due diligence and a number of checks in respect of their retailers.

    Ofcom Chief Executive, Ed Richards, said "The UK has one of the more competitive mobile phone sectors in the world. But strong competition is no excuse for marketing malpractice. We warned the industry last year that unless it cleaned up its act we would consider introducing new rules. The facts show that this hasn't happened, so we are now proposing tougher measures to protect consumers from unacceptable sales and marketing practices."