Regulators must act promptly to address loyalty penalty for consumers – watchdog

Regulators must “act promptly” to stop firms ripping consumers off for their loyalty, the competition watchdog has warned.

The Competition and Markets Authority (CMA) said “more needs to be done” as it issued a progress update on reforms set down in December to address loyal insurance, mortgage, mobile phone and broadband customers being ripped off to the tune of £4 billion.

The CMA has launched two enforcement cases investigating harmful business practices in the anti-virus and online video-gaming sectors, and has set out a new framework providing clarity to businesses about what practices are acceptable.

But it said regulators needed to recognise the scale of the loyalty penalty and its impact in their markets and design effective interventions to help consumers, particularly the vulnerable.

It said it expected the Financial Conduct Authority and Ofcom to take “strong action” in their markets where problems were found, including considering targeted price caps where necessary.

It noted that six months on from its report, the loyalty penalty “continues to be an issue of great concern”, adding that it remained “committed to working with regulators and Government in tackling this exploitative problem”.

The CMA investigated concerns that companies penalise existing customers by charging them higher prices than new customers following a “super complaint” by Citizens Advice.

It found that consumers in those markets, as well as in cash savings, are “exploited” and face a “loyalty penalty” of around £4 billion a year.

The probe 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 latest update follows the Government announcing that it will legislate to give regulators, such as Ofcom and the Financial Conduct Authority, new powers to stop loyal customers being taken advantage of if their existing powers are insufficient.

CMA chief executive Andrea Coscelli said: “Our investigation revealed that loyal customers are being trapped in poor value contracts or paying more than they should. This has to stop – which is why we set out a range of robust recommendations to tackle such poor practice.

“We’ve made our own progress by taking enforcement action in markets where there are no specific regulators, including looking into potentially unfair rollover memberships. But more needs to be done to improve the areas of concern highlighted by Citizens Advice.

“Regulators need to act promptly to make sure that people aren’t being ripped off for their loyalty.”

Citizens Advice said consumers had been left worse off by billions of pounds since it filed its super complaint in September.

Its chief executive Gillian Guy said: “Tough new powers for the CMA to fine businesses who have broken the law will help it crack down on firms that exploit customers’ loyalty.

“But, while the Government’s announcement is welcome, we’re disappointed by the lack of action from regulators. The FCA and Ofcom have had six months since the CMA issued its findings on our super-complaint and there has been little progress. They need to set out their plans urgently on how they will tackle this systematic scam.”

Lindsey Fussell, Ofcom consumer group director, said: “Our analysis of the market reveals a complex picture, and confusion among customers.

“Broad-brush measures could threaten discounts, both for new customers and long-term ones who agree a better deal. So we’re tackling the cost of confusion through a range of targeted action, based on the evidence.”