CMA publishes recommendations to challenge “loyalty penalty”

The competition and markets authority has responded to the super-complaint made by Citizens Advice in late September, which criticised the “loyalty penalty” that customers typically pay by not switching service providers.

The response takes the form of an investigation and a number of recommendations for government and regulators to deploy.

The CMA says that it has looked at five markets highlighted by the complaint – which includes mortgages and household insurance – and found that in total, people in the UK pay £4bn a year more than they should.

In the mortgage market, this practice of charging customers who stay with the lender more is believed to affect 1 million people to the tune of £800m. The report adds that the average loyalty penalty paid is £1,000, “particularly high when compared to other markets.”

The authority’s recommendations include taking stronger action on harmful business practices that stop people getting better deals, such as making it difficult to cancel auto-renewal functions, setting out principles that all business should follow, including allowing customers to exit contracts easily, making regulators publish data for each supplier in order to hold them to account, and enforcing price caps on penalty fees.

CMA chief executive Andrea Coscelli says: “Millions of loyal or vulnerable customers are being taken advantage of each year by firms – and end up paying much more than they should do. This must come to an end.

“That’s why we have today recommended a robust package of reforms. There must be a step change to protect the people being hardest hit, including targeted price caps where necessary.

“Together the CMA, regulators and government must act more promptly and powerfully to hold firms to account, stop them exploiting their customers and restore people’s trust in markets.

Dashly founder Ross Boyd comments: “Only this month we conducted research showing that nearly four in 10 people have paid their lender’s much more expensive standard variable rate in the past after the end of their fixed rate period. This is their reward for being loyal to the average lender.

“In the mortgage sector, you suspect the early repayment charge and standard variable rate could be on borrowed time.

“The super-complaint made by CA will go down as the starting gun of radical pro-consumer change.”

UK Finance has also issued a response, in which managing director of personal finance Eric Leenders says: “The industry has already implemented a number of remedies to improve competition in the mortgages and cash savings market to encourage customers to shop around to get the best possible deal and we are pleased that the CMA has recommended that the FCA continues to work with the industry in response to the super-complaint made by CA.

“In July we launched a cross-industry voluntary initiative to help longstanding mortgage borrowers on reversion rates to switch to an alternative product. We are currently working with the regulator and government to consider what more could be done for customers when mortgage providers are no longer active in the market, which may include a change to the current rules to make it possible to switch a like-for-like mortgage to a different lender more easily.

“We will now work with our members and the regulators in the coming months to take forward these proposals.”

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