Mobile phone contracts and the Consumer Credit Act
Most, but not all, consumer mobile phone contracts entered into in the UK include some portion of subsidy covering the cost of the handset, amongst other things.
Dean Bubley, a telecoms analyst, mused some time ago as to whether handset subsidies were actually loans, and the implications of that. For example: are they regulated under the Consumer Credit Act? Do operators really want to be in the credit business in the current climate (even more pertinent now than it was in December 2007 when he asked the question)? Should consumers be told what the effective APR is on the subsidy-loan?
Finally, this week, I struck “I must ask the Office of Fair Trading about this” off my to-do list. All credit (no pun intended) to them, they were very helpful. I’ve asked them for permission to reproduce their response in full, but the relative short answer is: “yes, parts of a mobile phone contract can form a credit agreement which would be covered by the Consumer Credit Act”.
The view the OFT has taken is that “line rental” (i.e., network access charges) as well as inclusive minutes, texts, data allowance, and so on are considered regulated credit if the consumer cannot terminate the contract early without paying the balance of recurring charges up the amount which would have been paid were the contract to run its usual course. For example, if your contract costs you £25 per month, and you have 10 months to run, and your operator tells you it will cost you £250 to terminate early, you effectively took out a loan without knowing it.
In terms of the SIM and handset, the OFT says:
The provision of the handset and SIM card […] may be considered to be regulated hire or hire purchase agreement under the CCA depending on whether they remain the property of the mobile phone provider or whether they transfer to the hirer (consumer).
The SIM itself usually has a notice printed on the full-sized card it snaps out of stating that it remains property of the operator, thus—unless I’m mistaken—the OFT considers it to be “hired”. The handset itself may vary: you’d have to check your contract.
The issue here is twofold:
If the recurring charges on a mobile contract are partially repayments on a loan, hire, or hire-purchase agreement, what proportion of the charges relate to each?
If there are loans, or similar, what’s the effective APR?
Were these normal loans, the companies would be obliged to hand over this information—not just hand over, in fact, but readily present it. If you have a mobile phone contract, do you know the answers? I bet you don’t.
Today I thanked the OFT for their most helpful response, and asked them whether mobile phone companies should be obliged to present this information to consumers, and whether we should be able to sign up for a mobile phone contract without any credit being involved (not that this would necessarily be cheaper, but we have no way of knowing at present). I am, as they say, eagerly awaiting their reply.