The UK’s communications regulator, Ofcom, has fined Virgin Media £7 million and EE £6.3 million for breaking consumer protection rules.

Both were ruled to have levied excessive charges to customers who ended their phone and broadband contracts early.

Phone and broadband companies can charge customers who decide not to see out the minimum term of their contracts. But under Ofcom rules those charges must be made clear to customers, and must not make switching to another provider too costly.

Ofcom’s investigation found that both EE and Virgin Media failed to comply with these rules, because around 400,000 EE customers who ended their contracts early were over-billed, and customers ended up over-paying up to £4.3 million. Almost 82,000 Virgin Media customers were overcharged a total of just under £2.8 million. And both companies failed to make sufficiently clear the charges customers would have to pay if they ended their contract early.

Gaucho Rasmussen, Ofcom’s director of investigations and enforcement, said: “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.

“That is unacceptable. These fines send a clear message to all phone and broadband firms that they must play by the rules, in the interests of their customers.”

What did EE do wrong?

Ofcom’s investigation found that, over a six-year period, terms applying to EE’s ‘discount contracts’ did not clearly set out the charges its mobile customers would have to pay if they ended their contracts early. It also found that up to 15 million discount contracts for EE’s mobile, landline and broadband customers required them to pay excessive early exit charges.

Of those customers, 400,000 decided to leave their contracts early during the relevant period. They were collectively over-billed by up to £13.5 million in early exit charges.

This was because EE mis-calculated early-exit charges for these customers 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.

Not all affected customers paid the excessive charges, as some were subsequently waived by EE. Taking this into account, EE estimated that its discount customers overpaid by up to £4.3 million. These excessive charges disincentivised EE customers from switching to another provider, which is against Ofcom rules.

In light of these findings, Ofcom fined EE £6.3 million for its failings. The figure incorporates a 30% reduction to reflect that EE admitted the breaches and agreed to settle the case.

As part of EE’s co-operation with Ofcom’s investigation, EE agreed to change its terms and significantly reduce its charges. EE has refunded just over £2.7 million to the affected customers it has been able to identify, although this means up to £1.6 million cannot be refunded. Ofcom took these facts into account when setting the financial penalty.

As a result of Ofcom’s investigation, EE also volunteered to conduct an in-depth review of its processes and systems to help secure its future compliance with the regulator’s rules.

What did Virgin Media do wrong?

Ofcom’s investigation into Virgin Media’s conduct found that, for almost a year, Virgin Media levied early-exit charges that were higher than customers had agreed to when signing up to their residential contracts.

The company overcharged almost 82,000 customers who left their contracts early, by a total of just under £2.8 million – an average of £34 per person. Some 6,800 customers were overcharged by more than £100.

Due to Virgin Media setting its early-exit charges too high, its customers were disincentivised from switching to another provider, which is against Ofcom’s rules.

Ofcom’s investigation also discovered that Virgin Media failed to publish clear and up-to-date information on its website to help customers understand its early-exit charges.

Ofcom fined Virgin Media £7 million for its failings. It has also fined the company an additional £25,000 for providing incomplete information in response to a statutory information request.

Virgin Media has reimbursed or made donations to charity in respect of 99.8% of affected customers and the company is continuing its efforts to trace remaining customers in order to refund them. In the event it is unable to trace these customers, it will donate the remaining refunds to charity.

As a result of Ofcom’s investigation, Virgin Media has significantly reduced the level of its early-exit charges by an average of 30%, and up to 50% in some cases. Virgin Media now applies an additional reduction to the early-exit charges paid by customers who end their contract after moving house.

The company has also made changes to its procedures and contract terms applicable to home movers.