Financial services firms should be required to automatically upgrade loyal customers left sitting in poor value products, a body which advises the City regulator has suggested.
Some consumers sticking with existing deals could be incurring “loyalty penalties” which equate to more than 5% of their annual income, and possibly as much as 10% in some cases, the Financial Services Consumer Panel said.
It has asked the Financial Conduct Authority (FCA) to consider the merits of introducing a new automatic upgrade rule.
The duty of care suggested by the Consumer Panel would mean customers on poor deals who are paying high costs and charges or receiving low returns could be moved onto better, comparable products offered by the same provider.
This could involve a firm automatically upgrading its customers into its best available product or offering them a choice of better quality and better value products within the firm’s portfolio which suit their needs.
The Consumer Panel is an independent body which advises the FCA on the interests and concerns of consumers and its views do not represent those of the FCA.
Its research focused on eight products – current accounts, cash Isas, credit cards, mortgages, investment products, pensions, home insurance and income protection.
Panel chair Wanda Goldwag 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.”
The call follows a recent super-complaint from Citizens Advice to the Competition and Markets Authority (CMA) about long-term customers paying more for goods and services.
The CMA looked at the five markets highlighted by the super-complaint – cash savings, mortgages, household insurance, mobile phone contracts and broadband – and found a total loyalty penalty of around £4 billion a year.
The Consumer Panel said the FCA and CMA have often proposed solutions based around making it easier for people to switch deals, to address shortcomings in the way markets work.
Switching should always be easy, timely and convenient for consumers who choose to move – but it should not allow firms to treat their remaining or existing customers unfairly, it said.
The Consumer Panel suggested the FCA should calculate the total detriment to consumers from failing to auto-upgrade across products and use this to indicate where to prioritise its resources.