Mobile phone customers of EE, O2, Three and Vodafone could win £3bn compensation for ‘overcharging’

Millions of mobile phone users could owe £3 billion after years of overpaying on their contracts, a former director of Citizen's Advice has warned.

Customers could receive an average of £1,800 in compensation from Vodafone, EE, Three and O2, after a legal challenge was launched yesterday against Britain's four biggest mobile phone network operators.

Consumer champion and former director of Citizens Advice, Justin Gutmann, who took the legal action, estimates that these companies have overcharged customers on as many as 28.2 million contracts and are seeking damages of £3.3 billion.

Many are expected to have claims against more than one mobile operator and could therefore receive even more compensation, he says.

Together with law firm Charles Lyndon, Gutmann claims that phone providers have 'abused their dominant position in the UK mobile industry by charging a loyalty penalty', with existing customers being overcharged for handsets after the end of their contracts.

This applies to anyone who has taken out a mobile subscription consisting of a mobile phone and airtime services such as data, minutes and calling.

When these contracts are agreed, their price includes both the mobile services and the use of airtime services for the minimum duration of the contract.

An industry insider told This is Money's sister title, the Mail on Sunday, that the legal action could “open the floodgates to many more loyalty penalty claims”, including against insurers.

Gutmann says mobile network operators have failed to reduce the amount charged after the minimum contract term expired, despite consumers having already paid for their mobile phones. This means that customers could have been charged more than a new customer if they had only paid for airtime services.

He said: 'I am launching this class action because I believe that these four mobile phone companies have systematically exploited millions of loyal customers in the UK through loyalty penalties, taking more than £3 billion out of the pockets of hardworking people and their families .

'These companies continued to take advantage of customers despite the 2008 financial crisis, Covid and now the cost of living crisis. It's time for them to be held accountable.”

All eligible consumers will be automatically included in the claim for free unless they follow specific steps to opt out. You can find more information here online.

An O2 spokesperson said: 'However, we are proud to have been the first provider to launch split contracts a decade ago, automatically and completely reducing customers' bills once they have paid off their handset.

“We have long called for an end to the 'smartphone scam' and for other mobile operators to stop the pernicious practice of charging their customers for phones they already own.”

Vodafone said: 'This has just been brought to our attention and we do not yet have sufficient details for our legal team to assess.'

An EE spokesperson said: 'We strongly disagree with the speculative claim being made against us. EE offers a range of rates and a robust process for handling end-of-contract notices.”

Three have been contacted for comment.