Ofcom to ban ‘unfair’ automatic renewal of contracts

Rollover contracts that commit landline and broadband customers to continual minimum contract periods unless they opt out will be outlawed from 31 December this year. The decision came after concerns were raised over the number of customers effectively being trapped in their contracts.

Around one in six homes in residential broadband and landline deals are on rollover contracts, Ofcom estimated, including more than a million BT customers. Other firms promoting rollover contracts to households include iTalk, Axis Telecom and Eze Talk.

The deals are formally known as automatically renewable contracts (ARCs) and place the onus on customers to actively opt out before the terms are renewed. Those who exit the arrangement before the contract has expired face penalties for leaving prematurely.

Ed Richards, chief executive of Ofcom, said: “Ofcom’s evidence shows that ARCs raise barriers to effective competition by locking customers into long-term deals with little additional benefit.”

BT claimed customers were happy with the contracts and insisted they did nothing to harm competition. A spokesman said: “We have worked hard to make sure that customers understand what they are signing up to, including how the renewal works and the charges that apply if they choose to leave early.”

The firm said rollover contract sales would end with immediate effect. However, contracts which are up for renewal between now and 31 December will renew in the normal way.

But Adam Scorer, director of external affairs at Consumer Focus, said the ban was good news for consumers.

He said: “Many people have been unknowingly rolled over into another contract.

@This has left them unfairly tied into a contract which they had to pay a penalty fee to escape.

“This move by the regulator will help make it easier for customers to switch and get a better deal, and should help to make the market more competitive.”