Loyal mortgage customers being charged higher interest rates need a solution fast, the Competition and Markets Authority has said, in a dig to the Financial Conduct Authority’s ongoing research into the issue.
The CMA made the comments in response to a super complaint by Citizen’s Advice about the so-called “loyalty penalty”. The update addressed what progress had been made in the year since the complaint.
On mortgages the CMA said it was “aware” of FCA research on switching, “but would like to see swift progress in developing ways that help or protect longstanding customers who could switch but do not”.
It added: “It would also like to see a clear timetable for implementing these.”
In September 2018, Citizens Advice submitted a super-complaint to the CMA about what it said was the £4.1bn loyalty penalty suffered by long standing customers, including of financial services.
The CMA uncovered bad practices by firms in the five markets highlighted by the super-complaint: mobile phone contracts, broadband, household insurance, cash savings and mortgages.
These included continual year on year price rises, costly exit fees from contracts, time-consuming and difficult processes to cancel contracts or switch to new providers, and auto-renewal policies that switched unsuspecting customers onto more expensive contracts, often without sufficient warning.
Andrea Coscelli, CMA chief executive, said: “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.”
She called on the government to give the CMA the extra powers promised last year to fine companies that it finds are breaking consumer protection law.
According to Citizens Advice the loyalty penalty is widespread. Customers don’t realise they’re being penalised for their loyalty, and face obstacles when trying to shop around, i found.
Depending on the market, up to 64% of consumers didn’t know that loyal customers are charged the same or more than newer customers.
Customers in vulnerable situations are disproportionately stung by the penalty. Older, lower income and less educated consumers are more likely to face the loyalty penalty.
