Providers in the U.K.’s markets for cash savings, mortgages, insurance, mobile phone contracts and broadband are burdening customers with a “loyalty penalty” of around 4 billion pounds ($4.4 billion) a year, the Competition and Markets Authority said.
Vulnerable people, including the elderly and those on a low income, may be more at risk of overpaying for key financial services that comes staying with the same bank or insurance provider for a long time, the U.K. competition watchdog said in a statement Wednesday.
The CMA received a “super-complaint” in September by Citizens Advice about a possible “loyalty penalty” for customers in five areas, including savings accounts, mortgages and household insurance, prompting the review.
“Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated,” said Andrea Coscelli, the CMA’s chief executive. “They shouldn’t have to be constantly “on guard,” spending hours searching for or negotiating a good deal, to avoid being trapped into bad value contracts or falling victim to stealth price rises.”
The CMA made recommendations to regulators and government to help stop the practice. These include:
- Using enforcement and regulatory powers to clamp down on harmful practices that stop people getting better deals.
- Setting out clearly the principles businesses across all markets should follow, such as people being able to leave a contract as easily as they enter it.
- The CMA will also be looking at whether consumer law should also be reinforced.
- Firms should be publicly held to account for charging existing customers much more; regulators should publish the size of the loyalty penalty in key markets and for each supplier on a yearly basis.
- Targeted price caps to protect the people worst hit by the loyalty penalty, such as the vulnerable, where needed.
The CMA has also made recommendations to the markets regulator, the Financial Conduct Authority, and telecommunications watchdog, Ofcom, in each of the five markets, These include:
- Mobile: providers must stop charging pay-monthly customers the same rate once they’ve effectively paid off their handsets at the end of the minimum contract period. Ofcom should continue its work to challenge this practice and bring it to an end. More should also be done to make people aware of sim-only packages.
- Insurance: there is evidence of firms continually raising prices in this market. The FCA must look closely at these pricing practices in its current market study and take action to prevent people being exploited by firms. This should include considering pricing interventions.
The FCA has worked closely with the CMA since it received the super-complaint, the U.K.’s financial regulator said in a separate statement. The FCA has ongoing work on cash savings, mortgages and general insurance pricing practices looking at how to improve outcomes for consumers, including those who are long-standing, the agency said.
“The treatment of long-standing customers remains a priority for the FCA,” said Christopher Woolard, the regulator’s executive director of strategy and competition. “It is important that this issue is tackled and harmful practices are stopped.”
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