The Competition and Markets Authority (CMA) has cautioned businesses that, “now more than ever” borrowers should not be exploited by a loyalty penalty if they stay with their current provider after their introductory deal ends.
The competition watchdog issued the warning in its latest update on the practice of charging long standing customers higher prices for the same products or services than new customers or those who negotiate a new deal.
During the Covid-19 crisis, the watchdog said the effective operation of markets such as financial services was “critical”.
In its report, the CMA said: “People are facing additional pressures as a result of Covid-19 that require their attention and focus.
“They should not also continually have to be ‘on their guard’ to ensure they are not being ripped off as contracts come up for renewal.”
It added: “…it remains important, now more than ever, that people staying with their provider are not paying more than they need to, and that they are not being unfairly misled into paying a loyalty penalty.
“Businesses need to give their customers clear accessible information about the prices they are paying as well as sufficient warning when contracts are ending to enable customers to switch easily or renegotiate.”
FCA consultation delayed
Citizens Advice submitted a “super-complaint” to the CMA raising concerns about the loyalty penalty in September 2018.
The charity said consumers were being punished on price for staying with their provider in five markets; mobile phones, broadband, cash savings, mortgages and insurance.
The CMA agreed with Citizen’s Advice and set out a package of recommendations to the regulators of the markets responsible; Ofcom and the Financial Conduct Authority (FCA).
The FCA published its findings in March, revealing 10 per cent of long standing borrowers did not switch deals even when they were free to do so.
A consultation on changes to the mortgage switching process had been planned for the second quarter of this year, but due to the disruption caused to businesses by Covid-19 has been pushed back to later this year, with no firm date yet confirmed.
In its latest report the CMA said: “We encourage the FCA to look at ways to reach these consumers to encourage them to switch where they can get better deals elsewhere, particularly given the potential savings that could be made.”
Imperative businesses support customers
In March, the FCA published its findings into the impact of the loyalty penalty on mortgage borrowers. It found 10 per cent of long-standing borrowers did not switch their mortgage deal although they were free to move banks or switch products.
The FCA’s mortgages market study estimated that these individuals miss out on an average saving of £1,000 per year over the first two years of switching, and £100 a year thereafter.
The CMA said it was too early to know what the long-term impact of coronavirus would be for those markets that had been singled out for failings over penalising loyal customers but in the short term, businesses should not let their own challenges impede borrowers’ ability to switch to a better deal.
The report read: “…many businesses have had to change or adapt their operations due to reduced staff availability. We recognise that this has put pressure on firms.
“However, it may also make it harder for customers to switch or to renegotiate a better deal with their existing provider. Some consumers may also generally be more cautious about changing providers at this time.
“It’s therefore imperative that businesses do what they can to support their customers and ensure it is as easy as possible for them to access good deals.”
Samantha Partington is a freelance trade and consumer journalist writing about property and personal finance. Previously she worked worked for the Daily Mail and Property Week. She is the former deputy editor of Mortgage Solutions and editor of Specialist Lending Solutions.
Before becoming a journalist, Samantha worked as a mortgage broker and latterly for a mortgage, bridging and secured loan lender. Samantha is CeMAP qualified. Follow her on Twitter @SamJPartington1.