The Competition and Markets Authority (CMA) has investigated concerns raised by Citizens Advice in a ‘super-complaint’, that companies penalise existing customers by charging them higher prices than new customers.
The CMA has looked at the 5 markets highlighted by the super-complaint – cash savings, mortgages, household insurance, mobile phone contracts and broadband – and found that there is a total loyalty penalty of around £4 billion a year in these markets. 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 investigation has uncovered damaging practices by firms, which exploit unsuspecting customers. These include 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 sufficient warning their contract will be rolled over.
Millions of people are affected – from around 1 million in the mortgage market to nearly 12 million in the insurance market. The loyalty penalty is also likely to arise in many other markets, where people’s contracts are rolled over to a higher price.
A number of recommendations are being made to regulators and government to help stop loyal consumers being ripped off. These include:
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Cracking down on harmful business practices using enforcement and regulatory powers to clamp down on harmful practices that stop people getting better deals. The CMA has today opened a consumer law enforcement investigation in the anti-virus software sector. This is a first step and further action may be taken by the CMA and regulators against other companies.
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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.
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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.
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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 FCA and Ofcom in each of the 5 markets, where work is currently underway. These include:
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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.
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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.
Other recommendations have also been made in the mortgages, cash savings and broadband markets on ways that regulators can tackle the loyalty penalty and protect those being hit the hardest.
The CMA considers urgent action is required. It will be taking forward these recommendations, along with government and regulators. If sufficient progress isn’t made, it may take further action.
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.
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.
Together the CMA, regulators and government must act more promptly and powerfully to hold firms to account, stop them exploiting their customers and restore people’s trust in markets.
Further details of the CMA’s super-complaint investigation are available on the loyalty penalty investigation page.
Notes to editors
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The CMA is the UK’s primary competition and consumer authority. It is an independent non-ministerial government department with responsibility for carrying out investigations into mergers, markets and the regulated industries and enforcing competition and consumer law.
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The Enterprise Act 2002 (the Act) makes provision for designated consumer bodies to make super-complaints. Citizens Advice is a designated consumer body.
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A super-complaint is a complaint submitted by a designated consumer body that any feature, or combination of features, of a market in the United Kingdom for goods or services is or appears to be significantly harming the interests of consumers.
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Within 90 days after the day on which a super-complaint is received, the CMA must say publicly how it proposes to deal with it.
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Citizens Advice describes the “loyalty penalty” as the cost of being a long-standing customer, compared to a new customer receiving the same product or service.
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Details of our consumer law investigation into the anti-virus software sector can be found on the antivirus software investigation page. The CMA has not reached a final view on whether the terms and practices it is concerned about breach consumer protection law.
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The key pieces of consumer protection legislation relevant to the CMA’s investigation are the Consumer Protection from Unfair Trading Regulations 2008 (CPRs) and Part 2 of the Consumer Rights Act 2015 (CRA). The CPRs contain a general prohibition against unfair commercial practices and specific prohibitions against misleading actions, misleading omissions and aggressive commercial practices. Part 2 of the CRA aims to protect consumers against unfair contract terms and notices, and requires contract terms to be fair and transparent.
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Enquiries should be directed to press@cma.gov.uk or 020 3738 6460.
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