Telefonica UK Limited · DRN-6123018

The complaint Mr M is unhappy Telefonica UK Limited trading as O2 terminated a fixed sum loan agreement for a mobile phone when he cancelled his airtime contract. What happened In February 2024, Mr M took out a fixed sum loan agreement, known as a device plan, from O2, to finance a mobile phone. At the same time, he took out an airtime contract for services and data linked to the mobile phone. In November 2024, O2 contacted Mr M to let him know it was changing the services and prices for his airtime contract. As a result, it said he had the right to cancel the airtime contract without penalty, and if he did, he could continue to pay for his device plan monthly. Mr M called O2 in December 2024 to cancel the airtime contract and O2 confirmed he wanted to continue to repay the device plan monthly. But, O2 instead terminated the device plan agreement, and sent Mr M a demand for the full balance of over £1,000. Mr M made a complaint and contacted O2 over several months to try and resolve this, continuing to make manual payments each month. O2 said it couldn’t reinstate the device plan, and in June 2025 the debt defaulted and was sold to a debt management company, causing Mr M further upset. The company later returned the account to O2, but O2 said it would continue to report adverse information on Mr M’s credit report until the balance was repaid in full. As Mr M wasn’t happy with this, he brought the complaint to our service. Our Investigator upheld the complaint and said O2 had unfairly terminated the device plan when Mr M had been told this wouldn’t happen. She told O2 to reinstate the device plan agreement and remove the adverse credit markers, in addition to paying Mr M £250 to reflect the impact its actions had on him. Both parties accepted this finding, but O2 then explained it wasn’t able to reinstate the device plan agreement. It said Mr M could manually pay each month, but it would automatically report arrears on his credit report. It said Mr M could also get in touch each month to ask for the credit report to be amended, but it would be easier to wait until the balance was repaid. As Mr M wasn’t happy with this alternative, the case was passed to me for a final decision. I contacted the parties informally to confirm what O2 was able to do to resolve things. O2 confirmed Mr M could choose one of the following options: 1. Mr M could set up a standing order for the repayments with O2, but the agreement will be reported as “in arrears” until the device plan is repaid in full. Mr M could ask O2 to remove the arrears marker each month if he got in touch with O2.

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2. Mr M could set up a repayment plan with a debt management company. O2 would remove all adverse information from Mr M’s credit report but couldn’t guarantee the debt management company wouldn’t report the arrears itself. If Mr M was unhappy with the debt management company’s actions this would need to be raised as a separate complaint against the company. 3. Mr M could return the handset to O2 if it’s in "pristine condition", meaning free from physical and liquid damage. O2 would then end the agreement and refund the payments Mr M has made towards it. It would also remove all adverse information about the device plan from Mr M’s credit file. O2 said it would also pay the £250 compensation awarded by our Investigator in addition to any of these options. I put these options to Mr M but he didn’t accept them. He said the adverse information on his credit file was affecting his ability to apply for credit, and he was only being asked to pay the full balance because of an error by O2. He said he wants O2 to provide a live agreement again, with monthly instalments and no adverse credit reporting. As the parties didn’t agree on a way forward, I’ve now made a final decision on what should happen to resolve things. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I think the complaint should be upheld – and I’ve explained why. Mr M’s complaint is in relation to a fixed sum loan agreement, which is a form of regulated consumer credit agreement. This means our service can consider a complaint about how O2 administers the agreement and reports information about it to Mr M’s credit file. The complaint came about after Mr M cancelled his airtime contract, which isn’t a regulated financial agreement – but I’ve referenced it here as it provides important context for what happened. When O2 changed the terms of the airtime contract in November 2024 it wrote to Mr M, explaining he had the right to cancel it within 30 days as a result of these changes. Mr M did this, and O2 accepts Mr M ought to have been able to end the airtime contract. The device plan agreement terms state if the airtime contract is ended early, the device plan will be terminated and the full balance will become payable. But, O2 accepts this shouldn’t have applied to Mr M’s circumstances. I’m very sympathetic to Mr M’s situation here, as he relied on O2’s email and only cancelled his airtime contract as a result of that information. O2 says it didn’t have the systems in place at the time to keep the device plan open when Mr M cancelled the airtime contract. I’m not sure why this was the case, and it isn’t my role to comment on whether O2 has adequate systems in place or not. I also can’t punish or fine O2 for doing something wrong. Instead, my role is to consider how O2’s actions have affected Mr M, and whether it has come up with a fair way of putting things right for him. In an ideal world, O2 would be able to put Mr M back where he would have been – but it’s explained why it’s unable to do this. So, it wouldn’t be pragmatic or fair for me to direct O2 to do something I know it’s unable to do because of limitations with its systems. I asked O2 to put forward options it was confident it could complete, and it offered three choices for Mr M, as I’ve explained above. I understand Mr M isn’t happy with the options, but I’ve considered if I think these are reasonable alternatives based on the circumstances.

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The first option allows Mr M to repay the device plan balance monthly, but will mean his credit report is affected until the balance is repaid. Mr M has told me his credit report is important to him at the moment, so I don’t think this is a practical solution for him. O2 says it could manually update the credit report each month, but Mr M would need to get in touch monthly to ask for this to happen – and I don’t think it’s fair for me to expect Mr M to do that. However, if Mr M is happy to make contact monthly to avoid the impact on his credit report, I see no reason why he can’t ask O2 to go ahead with this option. The second option has a similar problem. While O2 says it would remove the adverse credit report loadings after the account is sold to a debt company, it can’t say how the debt company will report the account. I think it’s likely the debt company would report adverse information until Mr M clears the balance, even if it is aware of the background. I can’t make a direction to a third-party to do something on this complaint, and I also can’t direct O2 to ensure the third-party acts in a certain way. So, I don’t think I can fairly say this option is reasonable either. The third option allows Mr M to return the mobile phone to O2, if it is in a damage-free condition, for a refund of the payments so far. If O2 isn’t able to accept the handset back because of its condition, I think it would be reasonable for O2 to return the handset to Mr M and allow him to pick another option instead. But if the handset is accepted, this means Mr M would have had use of the phone for around two years but get his money back for those months, and the remaining device plan balance will be cleared. O2 will also then be able to remove any adverse information about the loan from Mr M’s credit report once it ends the loan agreement. Mr M says this would be disruptive and I agree there is some inconvenience here, but Mr M will be receiving the benefit of using the phone without charge for the past two years. I therefore think option three is a reasonable alternative. It would put Mr M in a position where he isn’t disadvantaged by O2’s mistake, and he would benefit from receiving a refund for the payments he’s already made, despite having had full use of the phone since February 2024. So, while I understand this may disappoint Mr M, I don’t think O2 needs to do anything more than it has offered. If Mr M wants to go ahead with any of the three options, I’d expect O2 to put things in place for him as agreed with minimal disruption. In addition, O2 has agreed to pay Mr M £250 to reflect the impact its mistake had on him. Mr M says he doesn’t think it’s right that system restraints mean he doesn’t get a fair and reasonable outcome on his complaint. He’s explained the impact of the adverse information on his ability to apply for finance, and I’m aware he had to contact O2 several times to try and find a resolution. I do understand Mr M’s frustration here, and I accept he’s in this position through no fault of his own. I’ve considered the impact this has had on him overall, and I think an award of £250 fairly reflects this impact. So, I think O2 must also pay Mr M £250, if it hasn’t already done so, in addition to the option he chooses to move forward with the account. I would remind Mr M that our involvement, if Mr M chooses not to accept the outcome of this final decision, doesn’t prevent him from pursuing other ways of resolving the matter with O2. My final decision My final decision is that I uphold this complaint. To put things right, Telefonica UK Limited trading as O2 must do the following:

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• Action Mr M’s chosen resolution option, from the three options listed above, and make the applicable changes to the agreement and credit report. • Pay Mr M £250 to compensate him for the impact caused, to the extent it hasn’t already done so. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr M to accept or reject my decision before 18 March 2026. Hannah Dunkley Ombudsman

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