Are you a victim of the loyalty penalty?

Monday, January 7, 2019

loyalty penalty

Consumers will be protected from the so-called Loyalty Penalty thanks to proposed new measures.

The Competition and Markets Authority (CMA) has responded to a super-complaint lodged by Citizen’s Advice in September with proposals to ensure loyal customers are treated fairly.

What is the loyalty penalty?

The super-complaint relates to five areas:

  • Cash savings
  • Mortgages
  • Household insurance
  • Phone contracts
  • Broadband

Suppliers of these services often penalise their existing customers by not offering the same deals given to new customers.

Why does the penalty exist?

According to Citizen’s Advice, the penalty costs UK consumers approximately £4 billion per year. It is particularly likely to affect the elderly, those on a low income and those with mental health issues. This is because they are less likely or able to compare and switch suppliers. Companies are accused of using ‘stealth price rises’ in order to increase the cost of services to loyal customers.

The problems often stem from:

  • Year on year stealth price rises
  • Costly exit fees
  • Contracts being difficult to cancel
  • Contracts auto-renewing or suppliers not warning customers that their contracts are due to come to an end.

The proposed changes

The CMA recommends the following changes to ensure a fairer market:

  • A crackdown on harmful business practices that stop people getting better deals.
  • Clear principles to be followed across all markets including people being able to leave a contract as easily as they enter it.
  • Firms to 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 body also said mobile suppliers must stop charging pay-monthly customers the same amount after they have effectively paid off their handset. Providers must also make sure that they do more to promote sim-only deals.

The Financial Conduct Authority (FCA) must look closely at pricing practices in the insurance field as part of their on-going study into this market.

Read the full study on the CMA’s website.