Four million people charged £490m to pay off mobile phone handsets they already own

The charity said that EE, Three and Vodafone have routinely charged customers for handsets which they had already paid off.

The charity added that customers were unaware they were being charged for the handsets after their contract had ended, and should only have been paying for calls, texts, and data.

The most common mobile contract holders to be overcharged are those with bundled deals, which typically last for two years and do not include information about the cost of the handset.

A study by the advisory service of more than 700 bundled contracts found that consumers would pay more than buying the phone outright in 73% of cases, despite 55% of consumers assuming it was the cheaper option.

The advisory service is calling on the three companies to separate the cost of the phone from the mobile service - a practice already in place with other providers.

Ofcom is consulting on addressing the problem.

Digital minister Margot James said: 'It is absolutely unacceptable for consumers to be charged for a product they have already bought. Mobile providers must make it clearer when a customer has paid off their handset and is in a position to switch to a cheaper deal.'

An EE spokesman said: 'We fully agree that customers shouldn't overpay, but we believe that this is best achieved through clear communications with consumers about their options, and that the current proposals for separating phones and tariff is overly simplistic and doesn't give the customers either the transparency or best deal that they deserve.'

Three said: 'We continue to look closely at the issue of handset financing and are working closely on this with the government and regulators.'

Vodafone said: 'We already contact all of our customers when they are approaching the end of their minimum term to let them know their options. These include upgrading their handset or moving to a SIM-only contract so they are not paying anything for a handset.'