CMA tackles loyalty penalty charges Bookmark and Share Button

19 December 2018

The Competition and Markets Authority (CMA) has today announced a package of reforms to tackle the substantial loyalty penalty impacting millions of people.

We’d highlighted our concerns about the potential financial impact of staying loyal to a provider and we’re pleased that the 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.

A number of recommendations are being made to regulators and government to help stop loyal consumers being ripped off. These include:

  • 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.
  • 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.
  • 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.
  • 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:

  • 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.
  • Broadband: the CMA welcomed the review recently launched by Ofcom. As part of Ofcom's review the CMA recommends that Ofcom considers a number of possible pricing interventions. These include tackling broadband legacy pricing and targeted safeguard caps to protect vulnerable consumers, alongside measures to increase engagement such as the use of smart data and exploring the feasibility of collective switching. 

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. Further details of the CMA’s super-complaint investigation are available on the loyalty penalty investigation page.

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