The Draft Code 15 document has now been published, and PSA are inviting responses to it. Parallel with the PSA Consultation, but with an earlier closing date of 11th June 2021, Ofcom are consulting on whether or not the new Code should be approved.
we believe that Code 15 fails to properly hpld Network Operators responsible for the fraudulent use of the payment mechanisms they operate. Code 15 suggests that MNOs could be held accountable for the failure of networks to perform proper Due Diligence Risk Assessment and Control in relation to the Payment aggregators with whom they contract. In recent years this has been clearly lacking. We believe that PSA should be able to sanction MNOs who fail in their Due Dilgence responsibilities in the same way as they can currently sanction Service Providers and Payment Intermediaries. Much consumer harm could have been avoided in recent years in networks had taken their responsibilities seriously instead of seeking to profit from obviously fraudulent “services”.
Our initial thoughts on what Code 15 should have contained are here.
PSA are currently consulting on a new Code of Conduct for Phone-paid Services to replace the current Code 14. The initial consultation period ended on 2nd July 2020. This was an initial consultation intended to inform the drafting of a new Code. PSA have promised further consultations at a later stage. It is likely that this will include a webinar where consumers can participate.
We regret the fact that PSA have, as yet, made little effort to give consumers a voice in formulating the new code. They have created a Consumer Panel, consisting of people we have never heard of and who seem to have little experience of the problems consumers have when trying to resolve disputes with Phone-paid Services. They have however made extensive effort to consult with “the industry”, with a series of webinars.
The Consumer Panel appear to have the role of approving PSA decisions regarding the new Code, rather than suggesting consumer friendly measures which could be included in it.
For these reasons, we urge all interested consumers to participate at every possible stage of the consultation. PSA’s initial consultation document is here.
We have produced a Response to PSA consultation on Code 15 which has been submitted to PSA as part of the initial consultation process. Although this phase of the consultation is now over, it’s not too late to let PSA know what you think.
Amongst the things we would like to see in a new code are:
- An end to the presumption by PSA that third party charges on phone bills are lawful unless proved otherwise. The reverse is actually the case. In UK law the burden of proof rests with the vendor to prove the existence of a contract, not with the consumer to prove that it didn’t exist. Unless there is proof that a consumer has lied, they should be assumed to be telling the truth. It is upsetting for consumers when PSA effectively accuse them of lying when they know this is not the case and there is no evidence to support PSA’s view. The new Code should make it clear to providers that unless they are able to show evidence of consent to charge, to the consumer, they should refund in full without delay or prevarication. We want to see an end to cases where consumers are told “you must have clicked on a pop-up advertisement” without any detail or proof, and then offered a 50% so-called “goodwill” refund. If a merchant insists that a lawful contract was entered in to by the consumer, they must be required to furnish evidence of that assertion. The current Code is far too vague on this issue.
- Much greater involvement and responsibility on the part of the Mobile Network Operators. Proof of “consent to charge” should be in their possession before they apply these charges to consumer accounts. This evidence should be provided to consumers if they query a charge. Surely, if the networks have the power to enforce these charges, through the courts if necessary, consumers should be able to hold the networks to account for charges which they believe to be fraudulent, and not be forced to go elsewhere.
- A move to a more prescriptive code. It is our view that the current “outcomes based” code is difficult to enforce, as the outcomes are expressed in subjective terms. Provisions such as
“Where refunds are provided to consumers they must be provided promptly and in an easily accessible manner.” make it more difficult for PSA to sanction errant vendors. The new Code should specify a method or methods which PSA consider “easily accessible” and how many days they would consider “promptly” to be. Consideration should be given to setting performance indicators with administrative fines, relating to the proportion of complaints generated by a service.
- The ability for PSA to suspend services that generate large volumes of complaints before conducting a full investigation. One of the most serious faults with the existing code is that “services” like ModoMobi are allowed to continue while PSA “investigates” them. “Services” like this should be suspended once it becomes evident that they are generating a disproportionate volume of complaints. The recent case of Salvatet Inversiones is an example of this. The service caused massive consumer harm, much of it to vulnerable consumers. However, it was allowed to continue generating revenue throughout the investigation and right up to the Tribunal date. The £1m fine imposed has little chance of ever being collected and the directors of the company will pocket over £2m in revenue. This disgraceful inability of PSA to effectively sanction bad actors has to be addressed in Code 15. In our view the most effective sanction is to cut off the revenue stream as soon as there is evidence of breaches of the Code. Maybe in less serious cases, PSA could be given the power to instruct MNOs to withhold payment of revenue pending the outcome of an investigation. The withheld revenue could then be used to pay refunds and fines in the event that a Tribunal decides on those sanctions.
- A “chargeback” mechanism to redress the balance of power between the vendor and the consumer. Consumers should be able to get charges reversed, particularly where the MNO can provide no evidence that the consumer has consented to them. Vendors can then pursue the consumer for the charge, if they are able to substantiate it. This reverses the current system where consumers have to commence legal action of their own to recover unlawful charges.
- The use of a chargeback mechanism, as described above would provide the statistics necessary to set performance targets in relation to them. The credit card industry apparently investigate & suspend/remove merchants as soon as “chargeback” (refund rates) exceed 1%. MNOs should be doing same – not solely for consumer protection, but as part of complying with their many other legal obligations. A system that fails to maintain such checks is bound to be attractive to fraudsters. Chargeback statistics should also be provided to PSA to inform their investigations.
- Greater consultation with real consumers. The Consumer Panel needs to be genuinely in touch with the views of consumers, particularly those unfortunate enough to become victims of this form of fraud. Consumers need an advertised means of contact to raise issues with them. It is apparent that the Consumer Panel is currently getting only half of the picture. In addition to the Consumer Panel, PSA should hold open meetings/webinars with interested consumers in the same way as they do with the industry.
- A requirement that networks provide a facility for consumers to opt-out of Phone-paid Services in their entirety (a “charge to bill” or “charge to mobile” bar). Many networks already offer this facility, but it needs to be mandatory for all networks to provide it. Consumers should be asked when taking out a contract whether they want to enable phone-payment. This would protect children, the elderly and the vulnerable from being unwittingly exposed to the fraud and sharp practices endemic in the industry.
- The ability for Consumers to opt out of having their MSISDN leaked to third parties via MSISDN passthrough. This would be an effective way of protecting consumers from the services doing the most harm whilst still allowing access to Phone-paid Services such as charity donations which are activated via MO SMS.
- A requirement that networks are able to stop recurring charges on behalf of consumers, in the same way as banks can stop direct debits and standing orders,, without referring the consumer to the vendor. All other payment processors are able to do this and it is not unreasonable for consumers to expect it.
- A requirement that indefinite subscriptions be regularly “renewed” if there has been no interaction with the service. Where there is no possible interaction, for example where the service consists of SMS alerts, regular re-confirmation of the subscription should be mandatory. The “Payforit” scheme had a 120 day rule for subscription services, although nobody ever seems to have enforced it. This will prevent “cramming” fraud where regular, unauthorised, small charges go unnoticed by consumers over long periods, sometimes resulting in the loss of hundreds of pounds. If a service hasn’t been used for a period, the consumer should be asked to re-confirm the subscription. If it isn’t re-confirmed it should lapse, and no further charges should be made. Merchants should be required to keep evidence of usage where subscriptions are not subject to a renewal process.
- In an ideal world we’d like to see the telecom exemption from regulation under PSD2 removed in its entirety. Realistically though we’d like PSA to take a look at the way in which FCA regulated payment processors are required to work and modernise the requirements for phone-payment.
- The funding model needs to be re-examined. PSA correctly observe that many services and service types generate very few complaints, while others generate a disproportionate number of complaints. We suggest that the levy should be adjusted so that the cost of regulation falls more heavily on services which generate the most complaints. A “polluter pays” approach to the funding of Phone-paid Services Authority might help in cleaning up the industry.
- All services should be required to be the responsibility of a UK company. Many of the complaints in recent years have related to services operated by companies based overseas in Cyprus, Belize, the UAE and numerous other jurisdictions. It has become clear that PSA experience great difficulty in enforcing the code against these companies and consumers experience similar difficulty in obtaining redress for unlawful charges. While we would not wish to preclude overseas companies from offering Phone-paid Services in the UK, it is essential that they are subject to UK law including the Small Claims procedure.
- STOP texts should not be chargeable. Many phones warn, when sending a text to a shortcode, that there may be a charge. The level of the charge is not specified, and many consumers are deterred from sending the STOP text as a result. Consumers do not see why they should be forced to pay to stop charges they believe to be fraudulent.
- We’d like to see PSA offer more help to consumers who, having followed their advice, have pursued the service provider for a refund and have obtained a County Court Judgement (CCJ) against the merchant in the Small Claims court. There is a problem with a small number of merchants who fail to pay consumers in these circumstances, but are allowed to continue collecting payment for services. The Code need to deal with this situation. If a consumer obtains a CCJ against a service provider, and that service fails to satisfy the judgement, this should be a contravention of the Code. It is a requirement of the Code to treat consumers fairly. Failing to pay a consumer a court ordered refund is not fair treatment.
- We’d like to see greater transparency from PSA particularly in relation to Track 1 investigations. The publication of Tribunal judgements can be useful, but PSA have a policy of dealing with many cases “informally” or via a Track 1 investigation. Whilst recognising that this can save time and resources, it can put some
consumers at a disadvantage. Where an investigation discovers evidence of a breach of the code, an agreement is often made that affected consumers should be refunded. Unfortunately such agreements are not publicised, which results in many consumers not receiving refunds for which they are qualified. In a recent case, where a merchant refused a full refund to a consumer, legal action was averted when we discovered the existence of such an agreement.