New rules to stop firms ripping off loyal customers
The Competition and Markets Authority (CMA) found people who stuck with their existing provider were being ripped off to the tune of £4bn.
The CMA probe followed a ‘super-complaint’ raised by Citizens Advice in September, which said companies penalised existing customers by charging them higher prices than new customers.
Andrea Coscelli, chief executive of the CMA, 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.
“Millions of loyal or vulnerable customers are being taken advantage of each year by firms – and end up paying much more than they should do. This must come to an end.
“That’s why we have today recommended a robust package of reforms. There must be a step change to protect the people being hardest hit, including targeted price caps where necessary.”
What the investigation found
The CMA said it had uncovered damaging practices by firms in the cash savings, mortgages, household insurance, mobile phone contracts and broadband markets, including continual year-on-year stealth price rises and costly exit fees.
It said some customers faced time-consuming and difficult processes when cancelling contracts or switching to new providers and some firms required customers to auto-renew or did not give sufficient warning their contract would be rolled over.
The CMA said the so-called loyalty penalty affects millions including as many as one million people in the mortgage market and 12 million in the insurance market.
What the CMA recommends
To stop loyal customers being ripped-off, the CMA has made a number of recommendations to regulators and government. 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 Financial Conduct Authority (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.
Other recommendations include:
• 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.
• People should be able to leave a contract as easily as they enter it.
• Targeted price caps to protect the people worst hit by the loyalty penalty, such as the vulnerable, where needed.
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.
“The CMA is clear that nothing should be off the table when it comes to tackling the loyalty penalty, including targeted price caps, so we’re expecting bold action.
“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 regulators to make progress.