What does the chart show?
It shows the amount by which customers have overpaid in five consumer markets since September 2018 as a result of the so-called “loyalty penalty”, according to calculations made by Citizens Advice.
The charity says companies in many markets such as broadband or insurance charge much more to longstanding customers than those who join up, unfairly penalising those who stick with a company for the long term.
The extra paid by people staying with a service provider comes to £2.98bn over the six-month period, the charity says.
Why did it start the clock from September?
Because that was when the charity lodged a “super-complaint” with the Competition and Markets Authority (CMA), in which it proposed solutions to the loyalty penalty for the five markets of mobile, broadband, home insurance, mortgages and savings. Since then, it claims, the market authorities — Ofcom and the Financial Conduct Authority (FCA) — have not moved fast enough to address the problem, in spite of the CMA announcing in December that it had found damaging practices among companies and wanted to see urgent action.
Hasn’t the prime minister just announced further moves on this?
Yes, she has. Theresa May this week said the CMA and other regulators would get new powers to act as “judge and jury” in tackling companies they believe are ripping off loyal customers. Under the proposals, the authorities would be able to fine companies without having to go to court.
The CMA also published a progress report on Wednesday, looking at what advances had been made since its investigation. It found that regulators were working towards making its recommendations happen, but said “more must be done to take this forward”. It said it expected strong action from the FCA and Ofcom where they found problems, “including considering targeted price caps where necessary”.
What do the regulators say?
The FCA says it had already begun to tackle the loyalty penalty before December, with a focus on the mortgages, cash savings and general insurance markets. Since then it has announced proposals requiring mortgage brokers who recommend a home loan that is not the cheapest available to explain their reasoning to customers. It has also proposed changes to the rules to help so-called “mortgage prisoners” who are unable to switch to a better deal with another lender.
It is looking at pricing in the insurance market, following evidence that existing customers were often paying more than new customers and says it will publish its interim findings later this year. Also later this year will come its recommendations on the shortcomings of the cash savings market, with a “basic savings rate” one of the ideas under consideration.
What about Ofcom?
The telecoms regulator has been investigating pricing in mobile and broadband contracts and this week announced measures such as a new compensation scheme and a requirement for companies to tell customers when their initial contract is up.
However, it says customers are not automatically worse off for staying with a mobile provider for a long time. “More than one-quarter of the people who pay monthly for their handset and are ‘out of contract’ would pay more if they switched to a similar Sim-only deal,” it says. It adds that the reverse is also true for other customers, creating a complex picture.
Broadband customers who renegotiate with their existing provider do better than “out of contract” customers, Ofcom says, adding that it had not identified a loyalty penalty in these markets but a “cost of confusion among customers”.
Setting a single price for everyone would therefore be the wrong answer, it says. As well as harming competition, “that could lead to many new and existing customers paying more”.
In its progress report, the CMA makes clear it expects Ofcom to consider “a full range of interventions”, including targeted safeguard caps for vulnerable customers.
“Six months on from our report, the loyalty penalty continues to be an issue of great concern,” it says.
