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Last Updated: Thursday, 28 February 2008, 12:31 GMT
Ofcom set to ban 'unfair' charges
A cheque being signed
Paying by cheque can carry a noticeable extra cost
Telecom and internet firms will soon have to stop levying extra charges that the regulator Ofcom says are unfair.

The regulator is responding to complaints about additional charges for paying bills by cheque or cash, ending contracts early or paying bills late.

Any extra charges must be clear and "demonstrably fair", Ofcom says.

The draft guidance from the regulator covers bills and charges not only for home phones but also for mobile phones, broadband and pay TV.

If charges remain unclear to customers, firms will not be able to recoup more than the cost of providing the service, under the draft rules that should come into force in the autumn.

"For consumers to get an all round fair deal they need to know the full costs of the services they are buying," said Ofcom's chief executive Ed Richards

"Our proposals will encourage companies to be open and straightforward about additional charges where they feel it is necessary to include them.

"In addition, our proposals mean that, in some cases, additional charges will be subject to clear limits which would provide direct protection for consumers," he added.

Clear explanation

A year ago BT attracted widespread criticism for a decision to increase to 4.50 a quarter the extra charge on customers who did not pay their bills by direct debit.

A consumer who ends a contract early should never have to pay more than the payments left under the contract

Its rival Virgin charged 5 a month for administering the bill collection of customers who had not signed up for a direct debit.

Ofcom's proposed rules do not outlaw such extra charges altogether.

Instead, it says they must be "prominent and transparent" so that customers can easily make up their own minds about the true overall cost of buying a telephone service.

If a company does not do that, then the charges "should only include the provider's extra costs of collecting normal payments and not an opportunity to collect further revenue".

"This consultation and subsequent action will hopefully lead to more transparency and fairness for consumers in the telecommunications industry," said David Sinclair of Help the Aged.

"It is often the poorest and most excluded who lose out and end up paying more when charges are hidden or when contract amendments or extensions are made without the active consent of the consumer."

Legal threat

Ofcom's new rules will apply not only to bill collection charges but to charges for collecting failed and late payments.

As well as making customers more aware of these, the regulator says they should only be applied once the customer has had a "fair chance" to pay the bill and should reflect only the true cost of collecting the money.

Ofcom also wants to apply the same argument to charges for breaking a phone contract by ending it early.

"A consumer who ends a contract early should never have to pay more than the payments left under the contract period," Ofcom said.

"In fact they should often pay less than this, to reflect costs providers save because the contract ends early."

Once Ofcom's final guidance is published later this year, telecom firms will have three months to comply, or face legal action under the 1999 Unfair Terms in Consumer Contracts Regulations.

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