Consumer Panel research makes case for automatic upgrades
The request comes after research found consumers are trapped in poorly performing financial services products to their detriment. The study found that the costs of remaining in such products can represent a notable proportion of a consumers’ annual income.
The Financial Services Consumer Panel has written a position paper titled ‘The Case for Automatic Upgrades’. The paper asks the FCA to consider the merits of introducing a new automatic-upgrade rule. This would either require a firm to automatically upgrade its customers to its best available product or offer them a choice of better quality and better value products within the firm’s portfolio which suit their needs.
The recent super-complaint from Citizens Advice raised concerns about long term customers paying more for goods and services, which it referred to as ‘the loyalty penalty’. The Panel’s research investigated this further.
Conducted by Europe Economics, the research used the FCA’s ‘Financial Lives’ data to identify the products which were held by the ‘average’ consumer. The eight products examined were: current accounts, cash ISAs, credit cards, mortgages, investment products, pensions, home insurance, and income protection.
The research found that some consumers could be incurring loyalty penalties equating to more than 5 per cent of their annual income, adding that it wasn’t impossible to imagine there were some consumers for whom these costs were as high as 10 per cent of their income.
Wanda Goldwag, panel chair, said: “The research demonstrates the detriment for consumers of remaining in poorly performing products and the need to ensure that all consumers are treated fairly. Loyal customers are often those who are too busy to search for and switch to better products, those who do not switch due to behavioural biases, those trapped with their existing provider or those who are not aware that better alternatives exist. Consumers should not be penalised for this loyalty. An automatic-upgrade rule would level the playing field.”