Watchdog plans price caps to stop £4bn loyal customer rip-off

The competition watchdog has laid down a set of radical reforms to how the insurance, mobile phone and broadband markets operate after finding that loyal customers are being overcharged by £4bn.

Following a “super complaint” by Citizens Advice, the Competition and Markets Authority investigated concerns that firms penalise existing customers by charging them significantly higher prices than those paid by new customers.

It found that consumers in those markets, as well as in cash savings, are “exploited” and face a “loyalty penalty” of around £4bn a year. It also found that vulnerable people, including the elderly and those on a low income, may be more at risk of paying the loyalty penalty.

The CMA inquiry uncovered “damaging practices” by firms, including continual year-on-year stealth price rises; costly exit fees; time-consuming and difficult processes to cancel contracts or switch to new providers; and requiring customers to auto-renew or not giving them sufficient warning that their contract would be rolled over.

The CMA is recommending crack down on harmful practices using enforcement powers, stating the principles businesses should follow and holding firms to account for their actions.

Most radically, it also suggests “targeted price caps” should be put in place to protect those worst hit.

The watchdog recommended Ofcom stops mobile phone providers charging pay-monthly customers the same rate once they’ve effectively paid off their handsets at the end of the minimum contract period.

The Financial Conduct Authority (FCA), meanwhile should “look closely” at evidence that insurance firms continually raise prices and take action to prevent people being exploited. This should include considering “pricing interventions”.


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