The UK's comms watchdog claims to have slapped a £13.3m penalty on EE and Virgin Media for fleecing customers who wanted to exit their broadband or mobile phone contracts before they were due to expire.
Ofcom today claimed both providers had ignored its customer protection rules that state agreements with consumers must make any charges "due on termination of contract... clear and accurate". The regs also indicate that switching to a rival must not be costly.
"EE and Virgin Media broke our rules by overcharging people who ended their contracts early. Those people were left out of pocket, and the charges amounted to millions of pounds," said Ofcom's director of investigations and enforcement, Gaucho Rasmussen.
Individually, Virgin Media was today fined £7m and EE has been asked to pay £6.6m by Ofcom.
The investigation found over a six-year period some 400,000 EE customers that prematurely called time on their agreement were collectively billed up to £13.5m in early-exit fees. EE miscalculated these charges based on the non-discounted monthly retail price.
"Affected customers were therefore allowed to pay a lower price while they remained EE customers but were treated as if they were paying another, higher price if they wanted to leave," said Ofcom.
Not all customers that wanted to rip up their contract early were hit by the charge, and in many cases EE waived the fee. In total, EE estimates its discount clients overpaid by up to £4.3m, said Ofcom.
The fine handed to EE was for its "failings", and includes a 30 per cent reduction because EE admitted the "breaches and agreed to settle the case".
Ofcom said EE has refunded the affected punters it was able to identify to the tune of around £2.7m, which means £1.6m could not be returned.
EE has vowed to complete an in-depth review of its processes and systems to comply with Ofcom regs in the future, the watchdog claimed. The firm said: "We accept Ofcom's findings and recognise that we have made a mistake. We apologise to customers with discounted tariffs who paid more than they should have when cancelling their contracts early. We've already refunded customers and changed the way we calculate early termination charges, and we will continue to focus on ensuring our policies are clear and fair for all customers."
As for Virgin Media, Ofcom said that in addition to the £7m for its "failings", it also penalised the company £25,000 for handing over incomplete data in response to a "statutory information request".
The probe discovered that for almost a year, Virgin Media imposed early-exit charges that were higher than the figures customers signed up to. It overcharged 82,000 customers who left early by just under £2.8m, an average of £34 per person, though 100 customers were overcharged by more than £100.
Given the exit fees, customers were given an incentive to stay put with Virgin Media, Ofcom said. Virgin also didn't provide clear and timely information on early-exit fees on its website, Ofcom added.
Virgin Media has refunded or "made donations to charity in respect of more than 99.8 per cent of affected customers", the comms watchdog claimed. The charity option was used when it was unable to ID the right customers.
Ofcom claimed victory in that Virgin Media has reduced early-exit fees by 30 per cent on average, and by up to 50 per cent in some cases. It has also agreed to "make it clearer" that Virgin's network does not cover the whole of the UK and any customers opting to move outside of that broadband network may be liable for early termination costs.
Virgin has also agreed to 30-day rolling contracts for customers that are aware they may be moving house in that time frame; and it will update training processes and customers services material.
And customers that move house but keep their contract with Virgin will no longer be forced to sign a new minimum contract term to avoid being charged for early exit.
Rather than taking the fine on the chin, Virgin Media responded by saying the fine was "both unjustified and disproportionate", and claimed it had "mistakenly overcharged" 1.5 per cent of its 5.5 million cable customers.
"As soon as we became aware of the mistake we apologised and took swift action to put it right by paying refunds, with interest, to everyone affected. For those few people we could no locate, we have made an equivalent donation to charity," said CEO Tom Mockridge.
"We wholeheartedly reject the claim by Ofcom that our ETC (Early Termination Charges) levels dissuaded customers from switching," he added. ®