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David Teoh’s TPG Telecom is being taken to court by the consumer watchdog over concerns the telecommunications company has made millions of dollars by keeping prepayments made by customers.

When customers sign up to some TPG plans they are required to pay a $20 fee to cover any phone calls made that are not included in the plan, such as an offshore call or a 1300 number.

TPG Telecom will face court over $20 prepayment charges.CREDIT:ROB HOMER

If the customer's $20 prepayment fund fell below $10, money would be debited out of the customer's account to bring the reserve amount back to $20. If a customer cancelled their plan, TPG would keep any amount customers had left in the prepayment fund. This arrangement has been advertised by TPG since March 2013.

The Australian Competition and Consumer Commission believes TPG may have kept “millions” of dollars by not giving this money back to customers and has begun proceedings in the Federal Court as a result, arguing it is a non-refundable fee. Penalties and compensation for customers are being sought as part of the action.

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The allegations from the watchdog include that TPG’s representations about the forfeiting of the fee and the top-up function are misleading, and that the standard contract term requiring this is unfair under consumer law.

ACCC deputy chair Delia Rickard said in a statement that a “reasonable consumer” would expect the fee to be refunded.

“It is unacceptable that TPG only disclose this forfeiture in fine print,” Ms Rickard said, “Since March 2013, the ACCC estimates that TPG is likely to have retained millions of dollars paid by consumers in prepayments that were forfeited."