Consumers are being ripped off to the tune of £4 billion a year by businesses that take advantage of their loyalty, say Citizens Advice.
The charity has submitted a super-complaint to the markets watchdog, the Competitions and Markets Authority (CMA) demanding the regulator outline a plan to fix the problem.
Consumers are being ripped off by a ‘loyalty penalty’, says the charity, in five essential marketplaces: broadband, home insurance, mortgages, mobile phone contracts and savings.
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The so-called ‘loyalty penalty’ occurs when customers of a business pay higher costs year-on-year for staying with the same product, while new customers of the same business pay significantly less.
Citizens Advice’s research shows the public is subject to £4 billion worth of overcharging every year, thanks to businesses punishing their loyalty. On average households are being overcharged by £877 per year.
Chief executive of Citizens Advice, Gillian Guy is excoriating in her assessment of the situation.
She says: “It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal. As a result of this super-complaint, the CMA should come up with concrete measures to end this systematic scam.”
The charity cites the example of an elderly couple overpaying their home insurance bill to the tune of £1,000 per year. The couple, in their 90s, had been with the same provider for six years, in which time the premiums had risen continuously.
This is only the fourth time the charity has used its power to make a super-complaint, since being given the power to do so in 2002. In 2005 it used the power to protest against payment protection insurance (PPI), which has led to billions of pounds of refunds to consumers.
Ms Guy adds: “It’s completely unacceptable that consumers are still being ripped off for being loyal to companies they rely on every single day.
“Regulators and Government have recognised the loyalty penalty as a problem for a long time - yet the lack of any meaningful progress makes this super-complaint inevitable.”
Responding to the super-complaint, Daniel Gordon, senior director at the CMA says: “We will now carefully consider the concerns raised by Citizens Advice, and any further evidence on this issue.
“Our response will set out the CMA’s views on this important issue and any next steps we think are needed to make sure businesses don’t take unfair advantage of their long-standing customers.”
Andrew Bailey, chief executive of the financial watchdog the FCA adds: “We expect firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing.
“It is important to get the balance right so that existing customers do not miss out on the benefits of competition and innovation.”
Simon McCulloch, Director at Compare the Market, said: “Inertia is a systemic problem, which providers often take advantage of. When it comes to buying financial products, customer loyalty is rarely rewarded. Shopping around and switching, whether it be for insurance, energy, banking or loans, is the best way to ensure you are on the most competitive deals. Consumers who automatically renew their cover or contract year after year, are likely to end up paying considerably more.
How you can cut costs
Households end up paying over the odds when they don't regularly shop around to get the best deal. Companies start to notice that you are not the type of customer who is likely to leave and so gradually push up bills. It is often - but not always - the case that the best deals are saved for new customers while existing, loyal customers are charged more.
Setting aside an afternoon to check that you are still getting the best broadband, energy, mortgage, insurance and savings deals can save you thousands of pounds if you have not done it for a while.
Even if you do not want to change supplier, call them up and see if you can negotiate a better deal if you have been with them for a while. Check prices of its rivals online - and the price it is currently offering new customers - and use this to help negociate a better deal.
A super complaint is a rare mechanism that only a few consumer bodies in the UK can use, subject to government designation. These include groups such as Citizens Advice, the Consumer Council for Northern Ireland, Consumer Council for Water, Camra, Energywatch, the National Comsumer Council, and Which?.
Super-complaints can be made to the CMA, FCA, Payment Systems Regulator (PSR), and other regulators. The complaint is fast-tracked to the regulator responsible giving it just 90 days to respond. If it agrees with the complainant, it then has to set out measure to tackle the issue.
The complain must specifically be that “any feature, or combination of features, of a market in the UK for goods or services is or appears to be significantly harming the interests of consumers.”
The complainants can't target one specific business's practice, rather it has to identify a market-wide failure or practice that is harming consumer interests. As such, it is usually unlikely that a consumer group would submit a complaint without a pretty clear idea that it has identified a problem in a particular market.