The competition watchdog has laid down a set of radical reforms to the way the insurance, mortgage, mobile phone and broadband markets operate after finding that loyal customers are being ripped off to the tune of £4 billion.
Following a ‘super complaint’ by Citizens Advice, the Competition and Markets Authority investigated concerns that companies penalise existing customers by charging them higher prices than new customers.
It found that consumers in those markets, as well as in cash savings, are “exploited” and face a “loyalty penalty” of around £4 billion a year.
It also found that vulnerable people, including the elderly and those on a low income, may be more at risk of paying the loyalty penalty.
The CMA’s probe uncovered “damaging practices” by firms, including continual year-on-year stealth price rises; costly exit fees; time-consuming and difficult processes to cancel contracts or switch to new providers; and requiring customers to auto-renew or not giving them sufficient warning their contract would be rolled over.
The CMA is recommending government and regulators crack down on harmful business practices using enforcement powers, stating clearly the principles businesses should follow and holding firms publicly to account for their actions.
Most radically, it also suggests that “targeted price caps” should be put in place to protect the people worst hit.
The CMA recommended that Ofcom puts regulation in place to stop mobile providers charging pay-monthly customers the same rate once they’ve effectively paid off their handsets at the end of the minimum contract period.
The FCA, meanwhile should “look closely” at evidence that insurance firms continually raise prices and take action to prevent people from being exploited. This should include considering “pricing interventions”.
Andrea Coscelli, chief executive of the Competition and Markets Authority said: “Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated. 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 found that millions of people are affected, including around 1 million in the mortgage market to nearly 12 million in insurance.
Gillian Guy, chief executive of Citizens Advice, said: “This is a strong response from the CMA, recognising that loyal customers are getting ripped off. That is exactly why we’ve been fighting to stop the loyalty penalty, and why we made the super complaint.
“While the CMA needs to hold regulators to account, the onus is now on Ofcom and the FCA to act. The CMA has set a six-month deadline for progress and expectations are high. Regulators must do whatever it takes to fix the loyalty penalty.”