A smart phone can be a significant credit risk. Since the introduction of smart phones, it is not uncommon for consumers to complain to the TIO about incurring bills amounting to thousands of dollars in very short times, a phenomenon labeled “bill shock”.
This shock can be a significant blow to a person who is employed with a regular income, but for those who live on a pension or other government benefit it can be even more serious.
According to the telecommunications industry’s own code of practice, the Telecommunications Consumer Protections code, financial hardship is where:
- due to reasonable cause, a customer is unable to discharge their financial obligations under their contract with the supplier; and
- the customer reasonably expects to be able to discharge those obligations if payment or service arrangements are changed.
The code says that before suspending a service, providers must make reasonable attempts to tell the customer of the consequences of non-payment and that the supplier has a financial hardship policy that may enable the customer to enter a payment arrangement to avoid further credit management action.
During the 2011 financial year, we received about 4,800 complaint issues about payment arrangements, an increase from just under 4,200 the year before. Although, payment arrangement issues are just over 10 per cent of 43,178 credit management issues the TIO received, they reflect the increasing impact of telecommunications debt on disadvantaged and vulnerable consumers.
Given the number of complaints about mobile services we receive, mobile phone consumers are more likely to request a payment arrangement, followed by landline and internet consumers. The TIO believes that payment arrangements should be flexible and take account of a customer’s individual circumstances.
The most concerning development in the payment arrangement category is that complaints about a supplier continuing to demand full payment where a payment arrangement has been negotiated have increased by 182 per cent over the past three year. This is followed by complaints where the consumer claims to have agreed on a payment arrangement only to find that the provider has no record of this (56% increase), complaints about providers refusing to negotiate payment arrangements (40.1% rise) and complaints about a supplier refusing to renegotiate a payment plan where the consumer’s circumstances change, for better or worse (28% increase).
One of the consequences of an unpaid telecommunications bill might be a default listing by a credit reporting agency, which may impair the person’s ability to gain credit including personal loans and mortgages.
Our data also indicates that consumers who are experiencing hardship often claim that providers:
- may not recognise that a matter involves financial hardship
- may impose inflexible payment arrangements that are far beyond the ability of the person to repay
- may continue credit management action, such as referral to a debt collector, even though the person has agreed to a payment arrangement
- may apply payments to the wrong accounts or not at all.
Providers have indicated their concern about bill shock and have signaled various measures to reduce its effect on consumers including:
- the offer of hard caps, where calls and downloads are limited once the monthly limit is reached
- throttling – or slowing down – of a service once the monthly limit is reached
- provision of expenditure information via regular text messages
- providing services that match a person’s budget rather than upselling them into a product that they cannot afford.
In November 2011, providers and consumer representatives indicated their commitment to work together to resolve some of these issues jointly at a financial hardship roundtable convened by the TIO. “Although the participants see the issues from different perspectives, it was good to see recognition of the most pressing problems,” said Telecommunications Industry Ombudsman Simon Cohen.