Big four mobile phone companies face £3.3 billion ‘loyalty penalty’ lawsuit

Vodafone, EE, Three and O2 are accused of using their market dominance to overcharge consumers on up to 28.2 million mobile phone contracts

Justin Gutmann, a former Citizens Advice executive, and law firm Charles Lyndon claim that the UK’s four largest mobile phone companies have been abusing their market dominance by charging a ‘loyalty penalty’ that has left customers paying significantly more than new customers for the same services.

Gutmann claims that Vodafone, EE, Three and O2 overcharged customers for handsets beyond the end of their contract terms. The price of new contracts included the cost of both the phone and the use of airtime services like data, calls and texts.

The claim says the big four network operators failed to reduce the overall amount charged to existing customers once the minimum contractual term expired, despite the fact that they had already paid off their phones.

This left customers on up to 28.2 million contracts dating back to 2007 being charged more than a new customer would be if they were just paying for airtime (or SIM only) services. He is seeking £3.3 billion in compensation for people who have been affected by this.

If successful, a consumer who bought a contract made up of a mobile phone and services such as data, calls and texts with just one of the mobile operators could be owed as much as £1,823.

Gutmann, who also has major consumer claims against Apple and a number of train companies, said:

‘I’m launching this class action because I believe these four mobile phone companies have systematically exploited millions of loyal customers across the UK through loyalty penalties – taking over £3 billion out of the pockets of hard working people and their families. 

‘These companies kept taking advantage of customers despite the financial crisis of 2008, Covid and now the cost of living crisis. It’s time they were held to account.’

The class action has been filed with the Competition Appeal Tribunal in London.

Loyal customers left paying the penalty

The claim is being brought on behalf of consumers who paid for mobile contracts made up of a mobile phone and data, calls and texts, and remained a customer once the contract had expired. 

‘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,’ Gutmann said.

Many consumers will have claims against more than one mobile phone company, which could leave them being owed higher levels of compensation. ‘We think that there are as many as 28.2 million contracts involved but those contracts were held by about 5 million people,’ Gutmann said.

Customers of Vodafone could be owed up to £1,823 per contract, Three customers could be owed up to £1,817, O2 customers could be owed up to £1,178 and EE customer could be owed up to £1,101.

All qualifying consumers will be automatically included in the claim for free unless they follow specific steps to opt out.

Sign up to Consumer Voice to stay updated as the claim progresses. When the time is right, we’ll tell you how to claim it. 

Citizens Advice loyalty penalty super-complaint

The claim follows a ‘super-complaint’ from Citizens Advice to the Competition and Markets Authority (CMA) in September 2018, which claimed that companies penalise existing customers by charging them higher prices than new customers.

Mobile phone contracts was one of five areas investigated by the competition regulator. It concluded that: ‘Mobile providers must stop charging pay-monthly customers the same rate once they’ve effectively paid off their handsets at the end of the minimum contract period.’ 

It made recommendations to the UK’s communications regulator Ofcom to ‘continue its work to challenge this practice and bring it to an end.’ It said: ‘More should also be done to make people aware of sim-only packages.’

Ofcom secured voluntary commitments in July 2019 from the major mobile phone operators (except Three) to tackle these bad practices. 

Citizens Advice published research last year that found one in seven consumers are still paying the loyalty penalty for broadband, mobile and mortgages.

O2 commitment to bring an end to ‘smartphone swindle’

An O2 spokesperson said: ‘To date there has been no contact with our legal team on this claim. However, we are proud to have been 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. 

‘We’ve long been calling for an end to the “smartphone swindle” and for other mobile operators to stop the pernicious practice of charging their customers for phones they already own.’

O2 has built an online overpayment calculator that shows customers of any network if they have indeed been overcharged for their device.

EE told Consumer Voice that it aims to ensure customers are always on the best deals and that its end-of-contract process is in line with Ofcom’s expectations. Its spokesperson said: ‘We strongly disagree with the speculative claim being brought against us. EE offers a range of tariffs and a robust process for dealing with end of contract notifications.

‘The UK mobile market is a highly competitive space with some of the lowest pricing across Europe.’

A Vodafone spokesperson said: ‘This has just been brought to our attention & we don’t yet have sufficient detail for our legal team to assess.’

Three was also contacted for a comment.