Class action lawsuit claims mobile companies’ ‘loyalty penalty’ contracts have overcharged consumers billions since 2007
The UK’s four biggest mobile operators have been targeted by a £3.3 billion lawsuit alleging that millions of customers have been ripped off by a “loyalty penalty” under which they pay more than if they had switched to a new contract.
Gutmann said when customers take on contracts these typically include the price of a handset, as well as services such as calling and data.
But after the end of such contracts, which typically last 24 months, the companies usually continue to charge customers at the same rate, even though the handset has at that point been paid off.
Such customers would be charged at a higher rate than if they had switched to, for instance, a SIM-only contract, Gutmann said.
“If our claim is successful, it will finally stop these firms from taking advantage of their loyal customers and stop the immoral practice of loyalty penalties,” he said.
The “Loyalty Penalty Claim” with the Competition Appeal Tribunal is opt-out, meaning eligible customers are automatically included unless they take specific steps not to be.
Gutmann estimated 5 million consumers across 28.2 million UK mobile phone contracts could be affected from 2007.
He said each overcharged contract could be worth as much as £1,800 to the consumer if the claim is successful.
Citizens Advice filed a “super-complaint” in 2018 with the competition regulator on the subject of loyalty penalties, prompting Ofcom in 2020 to announce new rules forcing mobile and broadband operators to notify customers when the end of their minimum contract term is approaching.
The rules also oblige operators to alert users to better deals if available and to reduce charges for customers when they roll off their initial contracts.
Citizens Advice said last year that one in seven consumers could still be paying a “loyalty penalty” for morgtages, insurance and mobile and broadband packages.
EE said it “strongly” disagrees with the “speculative claim”.
“EE offers a range of tariffs and a robust process for dealing with end of contract notifications,” the company said.
Vodafone said it didn’t have sufficient detail to asses the claim.
O2 said it was “the first provider to have launched split contracts a decade ago which automatically and fully reduce customers’ bills once they’ve paid off their handset” and had been campaigning on the issue since May.
Gutmann said changes by mobile operators and work on the issue by Ofcom and the Competition and Markets Authority does not address past harm to consumers, which is the subject of the claim.