Clamping down on mobile mis-selling

Proposals for new rules to stamp out misleading sales and marketing practices in the mobile market have been announced by Ofcom.This follows a warning last summer that, unless the sector cleaned up its act, Ofcom would introduce mandatory rules.
Despite this, some mobile phone companies and third party sales agents are still engaging in unacceptable practices that are against the consumer interest.

Ofcom is particularly concerned about two practices:

  • where customers are given false or inaccurate information when they want to buy a mobile contract; and
  • some "cash back” promotions offered by sales agents where  they fail to reimburse the consumer.
Following an enquiry into sales and marketing practices, Ofcom worked with five of the mobile service providers (3, O2, Orange, T-Mobile and Vodafone) to develop and introduce in July 2007 an industry code of practice aimed at tackling misleading sales and marketing practices including the fairness of the terms of cashback deals being offered.

At the time of its introduction, Ofcom made clear that unless the code resulted in a significant and rapid reduction in consumer complaints we would consider the case for formal regulatory intervention. This defined a best practice approach to marketing and selling mobile services, either directly or through third-party sales agents.

However, since July 2007, Ofcom has continued to receive a large number of consumer complaints about mobile mis-selling and cash back issues. Since the introduction of the industry code, Ofcom has received an average of around 700 complaints per month until January 2008, compared with 460 complaints in July 2007.

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.

"We have considered more interventionist options, including banning cashbacks or making mobile service providers responsible when independent retailers do not pay customers under a cashback scheme. However, we believe these options risk restricting consumer choice by affecting not just problematic cashback offers but also those (the majority) that work well. More intrusive interventions may result in mobile service providers reducing the number of retail outlets they use." said Ofcom

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.”

Chris Caudle, chairman of the IMPDA, said "We have been pleased to see that Ofcom in their document have taken on board some of the dealer suggestions made during our meeting in January, and Ofcom’s reference to introducing an approved independent retailer scheme by an approved industry body, this is just what the IMPDA proposal document suggested when it was presented at the Palace of Westminster in London. "

Ofcom proposes to have the new rules in place by summer 2008.

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