Britain’s competition watchdog has renewed its call for more powers to tackle the ‘loyalty penalty’ suffered by existing clients as opposed to ‘new business’.
The Competition and Markets Authority (CMA) is conducting an investigation into why long-standing customers are charged more for the same service as new customers or ones re-negotiating their contract.
The investigation was prompted by a super complaint from Citizens Advice which claimed that loyal customers were paying £4.1 billion more than new customers.
The concern is that customers who have been with a firm for some time are being kept on more expensive tariffs while new customers are being attracted by special discounted introductory rates.
So far it has uncovered poor practices in markets such as cash savings, insurance and mortgages.
It has also examined exit fees, auto-updates to more expensive contracts, lack of information and deliberate barriers to cancelling contracts.
In an update to its initial report the CMA says it is happy that the Financial Conduct Authority has set out new proposals in some areas but they want to be given extra powers to tackle offenders.
CMA chief executive Andrea Coscelli said: “Just over 12 months ago we reported that people were being over-charged by around £4bn a year in essential markets.
It is important that practices that aid this are stamped out and we’re pleased to see progress has been made in helping to stop people being penalised for their loyalty.
“But more still needs to be done to make sure that loyal and, in some cases vulnerable, customers are not let down or ripped off. We urge the regulators of the industries under scrutiny to keep up the pace, and we will continue to monitor their progress.
“For our part, our enforcement action on auto-renewal practices in certain sectors continues, and we call on the government again to give us the extra powers promised last year to fine companies that we find are breaking consumer protection law.”
The FCA investigation into insurance premiums found that 6 million customers are being ripped off by £1.2 billion a year with elderly and low income families being worst hit by what it dubbed the ‘loyalty penalty’.
The interim report suggests banning or restricting certain practices like raising prices for customers who renew year on year or requiring insurers to automatically transfer the customer to a cheaper equivalent deal.
It is also considering forcing insurers to publish information about price differentials between customers so consumers would be better advised of the market.