Account holders, guarantors and end users

Introduction

The Telecommunications Industry Ombudsman (TIO) receives complaints arising from situations where it is claimed that one person has entered a contract so that another person can use a service. Examples include:

• a parent arranging a mobile service for their child
• a friend signing a contract for a person who is under 18 years of age
• a relative or friend signing a contract for a person who is not able to obtain a service because they have a minimal or poor credit history, or
• a person arranging a service for a close friend or partner.

Scope

This position statement applies to complaints where it should have been apparent at the point of sale that the account holder was not going to be the main user of the service.

To decide whether a complaint falls within this scope the TIO will consider:

• the consumer and provider’s descriptions of the circumstances before the service was activated
• which other parties were present at point of sale, if appropriate, and
• usage of the service after it was activated.

Examples of complaints

A person may claim that they were not aware that they were consenting to being the account holder and would therefore be responsible for charges resulting from usage of the service.

In other situations, a person may claim that they were led to believe that the user of the service would be responsible for charges, and that they agreed to act as “guarantor” to the contract because they believed that being a “guarantor” meant being a witness.

In yet other situations, the person with the complaint may state that they knew they were the account holder or guarantor, but may claim either that:

• they did not understand, or were misled about, matters relating to the contract or service agreement. For example, a person may claim that they agreed to sign a contract for a friend or relative who was not yet 18, because they thought that the contract would be transferred into the other person’s name after their eighteenth birthday. They may also claim that, when the time came to transfer the contract, the provider rejected the friend or relative’s application because they had no credit history

  or

• their provider did not contact them to advise them that subsequent usage of the service had exposed them to financial risk or liability. For example, a person may claim that a provider did not contact the account holder about an overdue account before it reported the debt to a Credit Reference Agency, which listed a default in the account holder’s name.

Definitions

In this position statement:

An account holder is the person who signs or otherwise agrees to a contract for service, e.g. over the telephone or via the internet. The account holder is legally responsible for the service. If an account for a service is not paid, the service provider can take credit management action against the account holder, e.g. a default-listing (see TIO position statement, Default-listings).

A guarantor is a person who signs a contract of guarantee and promises to pay any outstanding debts if the principal debtor (the account holder) does not pay. The responsibilities of a guarantor are similar to those of an account holder. Telecommunications contracts do not normally allow for a person to act as a guarantor.

An end user is the person who uses the service. For most services, the account holder and the end user are the same person, i.e. the person who consented to be the account holder also uses the service. If the end user is not also the account holder, they have no legal responsibility for the service. Even though the end user may be using the service and the provider may be sending bills directly to them, the service is still the responsibility of the account holder. If the end user stops paying the bills, the account holder will be held responsible.

1. The TIO’s core position

The TIO’s view is that, in circumstances where it should be apparent to a service provider that the account holder is not going to be the end user of a service, the provider should advise the prospective account holder of their rights, obligations and potential financial liability or risk.

Further, it is also our view that in such circumstances the provider should:

• inform the account holder about how they can limit an end user’s ability to make changes that would expose the account holder to financial risk, and
  
  
• should a situation arise that exposes the account holder to financial risk, contact the account holder directly to advise this.

2. The TIO's expectations of service providers

The sections below set out the actions that a provider can take to limit an account holder’s exposure to risk when the account holder is not the end user of the service.

Information provided at point of sale

Providers are well placed to give consumers the following specific information before they agree to purchase a service:

• The account holder is responsible for the service and for paying the bills for that service, even though they may not gain any benefit from the service.
  
  
• The account holder’s responsibility for the service will only cease if the end user becomes the account holder after successfully applying for a transfer of contract, e.g. after they turn 18. On this point, the provider should provide adequate information about the policy and process for transferring the contract. The provider should also indicate to the parties the likelihood of a contract being transferred in the circumstances, e.g. if the end user has no credit history.
  
  
• The account holder will not receive bills if they arrange for them to be sent to an end user’s address, so they may not immediately know if the end user does not pay them by the due date. Such an arrangement will not change the fact that the account holder is responsible for making sure that the account is paid.
  
  
• The account holder can be default-listed with a Credit Reporting Agency if a bill is not paid within 60 days of the due date. If they are default listed, they may not be able to obtain credit for 5 years.
  
  
• The account holder can restrict the end user’s access to certain service features, e.g. they can ask the service provider to bar calls to 190 and international numbers or data usage. However, barring certain services is not the same as setting a limit on the end user’s total usage.
  
  
• If the end user is also an authorised representative on the account, the provider should explain to the account holder:
  • all the actions available to an authorised representative, e.g. changing a billing address, removing restrictions on accessing mobile premium services, or activating global roaming, and
  • whether it is possible for the account holder to limit an authorised representative’s actions, e.g. can they can give the authorised representative permission to change the billing address but not to remove barring of certain services?

Relevant industry codes

Actions at point of sale

To follow up verbal information given at point of sale, a service provider should also:

• give both the end user and the account holder a copy of the contract
  
  
• record the account holder’s contact details
  
  
• record the end user’s contact details
  
  
• tell the account holder and end user that they must contact the provider to update contact and billing details if this information changes, and
  
  
• record the account holder’s decisions about usage restrictions, authorised representatives, and any permissions given to authorised representatives.

Relevant industry codes

Information provided during the contract period

Where an account holder has arranged for the provider to send bills to the end user, it is the TIO’s experience that service providers also communicate directly with the end user about other information, including:

• information about changes to the service and the contract
  
  
• advice about plan options, e.g. that a $99 plan may be more economical than a $29 plan
  
  
• requests for payment of overdue amounts, and
  
  
• information about the consequences of not paying the account, e.g. reporting of the overdue account to a Credit Reporting Agency.

An account holder may not learn about overdue accounts and related credit management action in a timely manner if a provider communicates such information directly to the end user.

Because the account holder is the person who is legally liable for the account, the TIO takes the view that a service provider should contact the account holder directly:

• if the end user contacts the provider to ask for a change to the account
  
  
• before suggesting or making any changes to the contract
  
  
• before suspending a service for non payment (the TIO’s position statement, Unlimited credit – financial over-commitment may apply)
  
  
• before disconnecting a service for non-payment, and
  
  
• before reporting an overdue account to a Credit Reporting Agency.

Relevant industry codes

Guarantors

Consumers sometimes claim that at point of sale the provider’s representative advised them, or led them to believe, that they were agreeing to be “guarantor” for another individual who was to be the account holder. They claim that they only learned they were the account holder after they agreed to the contract.

Clause 7.2.4 of the Telecommunications Consumer Protections (TCP) Code states:

A Supplier must not use the term Guarantor to describe the Customer

Further to this rule, the TIO also takes the view that a provider should not imply that someone is a guarantor, whether they use the term or not.

In the TIO’s experience, it is very rare for a telecommunications contract to contain provision for an individual to act as guarantor. In such situations, Clause 7.2.3 of the Telecommunications Consumer Protections (TCP) Code requires the following:

If a Supplier requires a formal guarantee as security for any Service, the Supplier must provide appropriate advice to the Guarantor in Writing of the nature and effect of the guarantee before the Service is provided. NOTE: The Guideline to the TCP Code states that appropriate advice to a Guarantor includes the amount of the guarantee, where known; the period and extent of the guarantee, where known; and that a Guarantor could be liable for the full amount of the debt.

Further to this rule, in such situations the TIO expects the provider to

• advise both the guarantor and the account holder what their obligations are under the contract, and
  
  
• make sure that both the guarantor and account holder clearly understand their obligations.

3. How the TIO investigates complaints

The TIO investigates complaints about situations where the account holder is not the end user of the service by seeking answers to the following questions.

• What were the circumstances that caused an individual to agree to enter a contract for a service that was to be used by another person, e.g. did the account holder arrange the service on their own initiative, or did the end user ask the account holder to sign on their behalf?
  
  
• What information did the provider give the account holder and/or end user up to and including the point of sale? The TIO may request statements from the account holder, end user and provider representatives which describe their recollection of all presale discussion and interaction.
  
  
• If the account holder claims that they agreed to act as guarantor, did the provider explain the meaning of the term “guarantor” to them?
  
  
• If the account holder advises that they understood the implications of agreeing to act as guarantor for another person, does the contract allow for guarantors?
  • If so, was the guarantor advised about their status in writing?
  • If not, could the words or actions of the provider have led the customer to believe that they were acting as a guarantor?
    
    
• At point of sale, did the provider give the information listed above to the account holder? If so, how did they give this information to the account holder? Note: it is the TIO’s view that simply including this information in the terms and conditions of the contract is unlikely to constitute adequate advice.
  
  
• At point of sale, did the provider undertake the actions listed above?
  
  
• What systems and procedures does the provider have in place to deal with situations where the account holder is not the end user?
  
  
• At key points during the course of the contract, did the provider keep the customer informed about information relating to the contract and the service, e.g. did it inform the account holder about any unpaid charges before it took credit management action?

4. Possible outcomes

If the information we collect indicates that a service provider did not:

• adequately advise an account holder of their rights, obligations & risks under a contract
• inform the account holder about how they can limit an end user’s ability to make changes that would expose the account holder to financial risk, or
• contact the account holder when a situation arose that exposed them to financial risk,

we may ask the provider to:

• waive or reduce an outstanding debt
• remove a default listing in the account holder’s name, and/or
• release the account holder from the contract without penalty.

5. Relevant industry codes

Some industry codes refer to the issues discussed in this position statement.

Telecommunications Consumer Protections (TCP) Code

Chapter 7 - Credit Management
7.2.3	If a Supplier requires a formal guarantee as security for any Service, the Supplier must provide appropriate advice to the Guarantor in Writing of the nature and effect of the guarantee before the Service is provided. NOTE: The Guideline to the TCP Code states that appropriate advice to a Guarantor includes the amount of the guarantee, where known; the period and extent of the guarantee, where known; and that a Guarantor could be liable for the full amount of the debt.
7.2.4	A Supplier must not use the term Guarantor to describe the Customer
7.2.5	Where the Supplier knows that the Customer is not going to be the principal end user of a Service, the Supplier must Inform the Customer of their potential liability and risk before the Service is provided. EXAMPLES: an adult such as a parent or grandparent advises the Supplier that they want to obtain a mobile service on behalf of an underage user; or a Customer advises a Supplier that they are arranging a mobile service as a gift for another person.
Section 7.3 - Credit Control Tools	This section of the TCP Code includes the obligations on suppliers to provide information to consumers about: security tools unbilled amounts credit control tools available to customers, and customer options to restrict access.

Chapter 4 - Customer Information on Prices, Terms & Conditions

4.2.3

At the time a Customer applies for a service, or otherwise as appropriate, a Supplier must inform a Customer of any options to limit access to the service, and any charges for limiting access. NOTE: the Guideline to the TCP Code states that "otherwise as appropriate" could include providing the information in a welcome pack, on request of the Customer, or when relevant circumstances arise for that Customer. The example it gives of informing the Customer of options is: 'If you wish to bar access to premium rate services from this service, please contact us on XXX.'

First posted: 11 March 2008
Last updated: 12 May 2008