Telefonica UK Limited · DRN-6127496

The complaint Mr S complains about the balance owed under a fixed sum loan agreement he took out with Telefonica UK Limited trading as O2. What happened In January 2025, Mr S took out a fixed sum loan agreement with Telefonica to buy a brand new mobile telephone handset with a cash price of around £1,800. After making an upfront payment, Mr S was scheduled to make monthly repayments of about £46 over a three year period. Around ten months later, Mr S decided to change his handset with Telefonica. So, Telefonica arranged a second loan and sent Mr S a new handset, along with a prepaid envelope for him to return the initial device. Once Telefonica received the handset, the process was for them to value it and deduct the proceeds from the balance of Mr S’s initial fixed sum loan. This would then leave Mr S with just the new borrowing to repay. However, when Telefonica received the handset Mr S wanted to change, they found that a particular application was locked. This meant they couldn’t assess the device. So, Telefonica told Mr S they would look the device again, once he had unlocked the application. After a short delay Mr S duly unlocked the device remotely. But, Telefonica had already sent the handset back to Mr S. This meant Mr S was left with two loans to repay instead of one as planned. So, Mr S complained to Telefonica and said they had caused him unnecessary cost and distress. In their final response to Mr S’s complaint, Telefonica said they had previously paid Mr S £30 for the frustrations he had experienced in raising his concerns. But, they said Mr S hadn’t returned the handset in line with the terms of the service they offer to change a device. They said Mr S could only attempt to change his device once in an eleven month period, so they couldn’t offer to repeat the process. Mr S didn’t accept Telefonica’s response and brought his complaint to this service. While one of our investigators was reviewing Mr S’s case, Telefonica recognised where they could have done more to help Mr S. Although they didn’t offer to change Mr S’s handset, they said they would pay him an additional £100 for the distress and inconvenience caused. Our investigator looked into everything and found that Telefonica had treated Mr S fairly. He agreed that Telefonica had applied the terms of their handset change service fairly to Mr S’s circumstances. And that the offer to pay Mr S a further £100 was reasonable. Mr S didn’t agree with the investigator’s findings and said he had acted in good faith. He said Telefonica could have assessed the handset, after he had unlocked the device. Mr S also said the financial consequences of Telefonica’s actions were not proportionate to the circumstances. The investigator didn’t change his conclusions and Mr S’s complaint has now been passed

-- 1 of 3 --

to me to make a final decision. 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. Telefonica are seeking to recover payment from Mr S under a regulated fixed sum loan agreement. Our service is able to consider complaints about these sorts of agreements. Section 16 of the terms and conditions of the service offered by Telefonica to change handsets say: “Before sending your device to the requested address, you must first log out from and remove any personal accounts from the device. We will provide you with instructions in order for you to be able to complete these steps. Please bear in mind that we cannot guarantee that your request will be approved until we have checked its condition.” Having thought carefully about the terms of the service Mr S used with Telefonica, I think he was aware of the need to unlock the applications on his handset. I can see from Telefonica’s records where they gave this guidance to Mr S, and where the device was locked when Telefonica received it. I accept where Mr S says he simply overlooked a particular application on his handset. In other words, it was a mistake rather than an attempt to mislead Telefonica. However, I’ve also seen where the terms of Telefonica’s service cover the scenario Mr S found himself in. Section 24.3 says: “If your existing device does not meet the criteria, whether at the initial grading stage or the condition has subsequently changed once it is received by us, we will not close your existing contract and will not be eligible to continue with the process.” Furthermore, the frequency of use of the service to change a handset is summarised in section 11, where it says: “You will not be able to use (the service) within the first 11 months of the successful purchase and activation of the relevant eligible plan. Each time you use (the service), the 11 months will restart and you will only be able to use (the service) after this period.” With this in mind, I think the terms of the service offered by Telefonica allowed them to decide to return the handset sent to them by Mr S. I acknowledge this caused Mr S to be frustrated with the events. But, in the very individual circumstances of Mr S’s complaint, I don’t think it would be fair to require Telefonica to step away from those terms. So, I think Telefonica treated Mr S fairly when they decided he couldn’t change his handset using the service they offered. It then follows that I think it’s fair for Telefonica to have returned the handset to Mr S, and to hold him responsible for the balance of the fixed sum loan agreement associated with it. I understand that my findings here will be disappointing to Mr S. Afterall, he now has a handset he doesn’t want and he’s currently making monthly repayments for two devices from

-- 2 of 3 --

Telefonica. However, I think Telefonica have given Mr S reasonable options to be able to reduce the outstanding borrowing. Mr S can either recycle the handset with Telefonica, or take it to a different buyer. The proceeds can then be used to pay off some of the fixed sum loan agreement. I’m also aware that following my conclusions, Telefonica may start to contact Mr S to arrange for the repayment of the balance of the loan taken out in January 2025. In doing so, I remind Telefonica of their responsibility to treat Mr S’s financial circumstances with due consideration and forbearance. This may mean amongst other things, Telefonica carefully considering Mr S’s income and expenditure to put together an affordable repayment plan, if he needs such an arrangement. Aside from my findings about the balance of the agreement, I can see that Telefonica told Mr S they would assess his handset, if he could unlock one of the applications. It seems Telefonica did this knowing it was unlikely Mr S would go on the benefit from the features of the service to change a device. So, I think Telefonica gave Mr S incorrect information and caused him additional inconvenience. Additionally, I can see from the correspondence between Mr S and Telefonica where they didn’t really get to grips with his concerns, when he first told them about the problem. This caused several confusing email exchanges, which Telefonica have now acknowledged. Having thought about all the evidence, I don’t think Telefonica treated Mr S fairly when they gave him incorrect information about a second assessment of the handset. I think Mr S has experienced distress and inconvenience and there was a delay in Telefonica trying to sort things out. So, I agree with the investigator that it’s fair for Telefonica to make a payment to Mr S in recognition of the worry they caused. In all the circumstances I think the offer to pay Mr S a total of £130 is a fair reflection of the distress and inconvenience he experienced. So, I think Telefonica’s offer to pay an additional £100 is a fair settlement of Mr S’s complaint. Putting things right For these reasons, Telefonica UK Limited trading as O2 should: • Pay Mr S an additional £100 for the distress and inconvenience caused. My final decision My final decision is that I uphold this complaint and require Telefonica UK Limited trading as O2, to put things right as set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr S to accept or reject my decision before 23 April 2026. Sam Wedderburn Ombudsman

-- 3 of 3 --