Mobile phones: Firms face £3bn legal claim for overcharging

Millions of UK consumers could receive payouts after a legal claim was launched against mobile phone networks.

Justin Gutmann, a former executive at Citizens Advice, alleges Vodafone, EE, Three and O2 overcharged customers for phones beyond the end of their contract. 

He is seeking damages of more than £3bn on behalf of 4.8 million people.

Responding, EE called the claim "speculative", while O2 said it hadn't been contacted.

Vodafone said it didn't have sufficient detail for its legal team to assess, and Three declined to comment.

The "Loyalty Penalty Claim" - which is being filed with the Competition Appeal Tribunal - is being brought on behalf of consumers who bought contracts made up of a mobile phone and services like data, call minutes, and texts.

Mr Gutmann estimates that 28.2 million UK mobile phone contracts could be affected from 2007.

If the claim is successful, someone who had contracts with just one of the mobile operators could get more than £1,800, he estimated.

Mr Gutmann said when the contracts were initially agreed, the cost of repayment during the minimum term of the contract - which is typically 24 months - included both the cost of the mobile and the use of services.

He alleged that the UK's four biggest network operators and their parent companies did not reduce the amount they charged customers once their minimum contract term ended - despite the fact that consumers had already paid for their mobile handsets.

This meant existing customers were charged for something they had already paid for, and that they were charged more than a new customer on, for example, a Sim-only deal, he added.

"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," Mr Gutmann said.

It is an opt-out claim, which means qualifying consumers would be automatically included for free unless they follow specific steps to opt out, according to Mr Gutmann.

But the claim could take several years to go to court. Mr Gutmann is currently seeking certification - a step needed before the claim goes to trial.

"It may be a year or two," he said.

A spokesperson for EE 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."

Vodafone told the BBC: "This has just been brought to our attention and we don't yet have sufficient detail for our legal team to assess."

An O2 spokesperson said that 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," the spokesperson added.

The firm said it had been campaigning on this issue since May and has called on other operators to introduce changes that would prevent consumers overpaying for smartphones they already own.

It's something Jack Drury, 27, from St Albans, experienced earlier this year.

He told the BBC he was "delighted" with the claim.

"For many of us, a monthly fee is the most affordable way of accessing tech. But it should be clear what proportion of that fee is repaying a device, and what is paying for the mobile services," he said.

It is not the first time the issue of existing customers in the UK overpaying has been in the spotlight.

In September 2018 Citizens Advice submitted a super-complaint to the Competition and Markets Authority (CMA), raising concerns that longstanding customers were paying more than new customers for mobile contracts, as well as broadband, cash savings, home insurance and mortgages.

The CMA investigated and found the "loyalty penalty" was a significant problem hitting millions of people, including those who could least afford it.

In 2020, new Ofcom rules were brought in requiring firms to let mobile and broadband customers know when contracts are ending and if better deals are available.

Last year, the watchdog said that since the new rules were introduced, the number of out-of-contract broadband customers had fallen by more than one million.

Since 17 June 2022, it said providers need to provide customers with a contract summary before they can give their consent to enter a contract.

Mr Gutmann told the BBC's Today programme that there was "some evidence" phone networks had changed their approach, but added: "The work that Ofcom and the CMA have done does not address the issue of the harm done to consumers in the past and that is what my claim is about."

This year, Vodafone and Three announced they had struck a deal to merge and create the UK's biggest mobile phone operator, with around 27 million customers.

Representatives from the companies told MPs their planned merger would not increase prices, despite it reducing the number of competitors in the mobile market.

Mr Gutmann has previously represented consumers in legal challenges against UK train operators and Apple.

He said disputes of this size often take a few years to resolve.

The claim against Apple, which is unrelated to the claim against the mobile network providers, was filed in June 2022. The case was given the go-ahead by a UK court last month.

His claim against UK train operators was filed in 2019 and won't go to court until next year..