Vodafone fined £4.6 million for failing customers

• Ofcom investigation uncovered mis-selling, inaccurate billing and poor complaints handling procedures
• Vodafone will be fined £4,625,000 by Ofcom for serious and sustained breaches of consumer protection rules.

The penalty is the result of two investigations into Vodafone completed by Ofcom today.

One investigation found that 10,452 pay-as-you-go customers lost out when Vodafone failed to credit their accounts after they paid to ‘top-up’ their mobile phone credit.¹ The affected customers collectively lost £150,000 over a 17-month period.²

Vodafone also failed to act quickly enough to identify or address these problems, which stemmed from the company transferring to a new billing system.³ Only after Ofcom intervened did the company take effective steps to stop pay-as-you-go customers from paying money for nothing, and to reimburse those affected.

Vodafone also breached Ofcom’s billing rules, because the top-ups that consumers had bought in good faith were not reflected in their credit balances.

In a second investigation, we found that Vodafone failed to comply with our rules on handling customer complaints.

Vodafone’s customer service agents were not given sufficiently clear guidance on what constituted a complaint, while its processes were insufficient to ensure that all complaints were appropriately escalated or dealt with in a fair, timely manner.

Vodafone’s procedures also failed to ensure that customers were told, in writing, of their right to take an unresolved complaint to a third-party resolution scheme after eight weeks.

Financial penalties

As a result of these failings, two penalties have today been imposed against Vodafone: £3,700,000 for taking pay-as-you-go customers’ money without providing a service in return; and £925,000 for the flaws in its complaints handling processes.

The money, which must be paid to Ofcom within 20 working days, will be passed on to HM Treasury.

The penalties incorporate a 7.5% reduction to reflect Vodafone’s agreement to enter into a formal settlement, which will save public money and resources. As part of this agreement, Vodafone admits the breaches. It has also reimbursed all customers who faced financial loss, but for 30 it could not identify, and made a donation of £100,000 to charity.

Lindsey Fussell, Ofcom Consumer Group Director, said: “Vodafone’s failings were serious and unacceptable, and these fines send a clear warning to all telecoms companies.

“Phone services are a vital part of people’s lives, and we expect all customers to be treated fairly and in good faith. We will not hesitate to investigate and fine those who break the rules.”

The investigations

Ofcom opened two parallel investigations into Vodafone in June 2015.

Evidence showed Vodafone breached a number of ‘General Conditions (PDF, 449.4 KB )’ – the rules that all telecoms companies must observe, which are designed to protect customers.

Pay-as-you-go investigation

Ofcom found that Vodafone took money from pay-as-you-go customers but provided nothing in return. This was as a result of problems that occurred when Vodafone moved customers to a new billing system.

Vodafone disconnects inactive pay-as-you-go accounts after a certain period of time and recycles the numbers, a common practice in the industry.

Where a pay-as-you-go phone has not been used or ‘topped-up’ for 270 consecutive days, Vodafone puts the customer’s SIM card into a ‘pre-disconnection state’ for up to 24 hours, before disconnecting it from its network. During this period, customers should not be able to make calls or top-up their accounts.

Vodafone had problems transferring customer accounts to the new billing system, and so stopped disconnecting inactive SIMs from its network. Consequently, they remained in a ‘pre-disconnection state’ for significantly longer than 24 hours. Customers were able to pay for top-ups at cash machines and via other electronic methods during this period, which should not have been possible.

Although receipts confirming the success of their ‘top-ups’ were issued to some of those customers, Vodafone did not credit any of the customers’ accounts, or provide them with the services they had paid for. Nor did the credit show on customers’ account balances. This practice lasted for 17 months, costing 10,452 pay-as-you-go customers in the region of £150,000. Vodafone staff failed properly to investigate and put things right.

Ofcom’s investigation concluded that Vodafone had breached General Condition 23.2(a), which prohibits the mis-selling of mobile telephone services; and General Condition 11.1, which prohibits inaccurate billing.

Complaints handling investigation

All telecoms providers must have procedures in place that follow Ofcom’s approved Code of Practice (PDF, 20.9 KB ) for complaints handling. The Code sets minimum standards covering the accessibility, transparency, and effectiveness of providers’ complaints handling processes.

Ofcom’s investigation found that Vodafone provided its frontline customer service staff with insufficient and ambiguous information on when to treat a customer’s call as a complaint.

Vodafone’s procedures also failed to ensure that complaints were escalated quickly enough, and that customers received written notification of their right to alternative dispute resolution (ADR) after eight weeks.

We found that Vodafone’s flaws in its complaints handling processes did not comply with our Code of Practice, and so contravened General Condition 14.4.