CMA announces reforms to loyalty penalty

After investigating a “super-complaint” raised by Citizens Advice that companies were penalising existing customers by charging them higher prices than new customers, the CMA has today published its 8 recommendations to help resolve this issue in 5 markets.

“Loyalty penalty” refers to longstanding customers paying a lot more than new customers for the same services. This is said to occur when suppliers charge higher prices to their existing customers, who they think are unlikely to leave them in order to get a better deal.

The concerns raised by Citizens Advice were said to highlight that not enough has been done to address loyalty penalty in the mobile, broadband, cash savings, home insurance and mortgages markets.

The 8 key reforms recommended by the CMA are:

Stopping harmful business practices

  1. Bolder use of existing enforcement and regulatory powers to tackle harmful business practices.
  2. Legislative and / or regulatory change may also be needed to effectively tackle these practices. CMA will be exploring this further alongside its new powers to seek substantial fines where law is breached.

Publicising the loyalty penalty to hold suppliers to account

  1. Publish the size of the loyalty penalty in key markets and for each supplier, through for example an annual joint loyalty penalty report.

Giving people more help in getting better deals

  1. Empower intermediaries to support switching; for example giving a greater role to local consumer facing advisory organisations, such as Citizens Advice, who could more actively support switching for vulnerable consumers.
  2. Press ahead with the Smart Data Review and rolling this out in those markets such as telecoms, where it has the greatest potential to transform markets.
  3. Capture and share best practice on ‘nudge’ remedies that have been tested and shown to work or not. Some remedies (such as requiring suppliers to give last year’s price on renewal) could be rolled out across markets and potentially strengthened.

Protecting consumers from harm, particularly vulnerable customers

  1. Consider targeted pricing regulations such as limiting price differentials or price caps, alongside other measures where there is clear harm, particularly to protect vulnerable consumers. CMA has also made recommendations about potential pricing interventions to be considered as part of ongoing work in the 5 markets.

Better understanding of the loyalty penalty across markets

  1. Assess the feasibility of matching price data to a recurring, large scale UK survey to improve CMA’s understanding of who pays the loyalty penalty across markets, and whether vulnerable consumers are particularly adversely affected.

In addition to these recommendations, CMA has also put forward suggestions to the FCA and Ofcom on measures to deal with this problem in the 5 markets.   Its recommendations for the cash savings, insurance and mortgages markets are as follows:

Cash savings: the FCA should consider further pricing interventions such as a targeted absolute price floor in cash savings and consider whether collective switching can be applied if it implements a ‘Basic Savings Rate’.

Insurance: CMA welcomes the FCA’s recent market study on general insurance practices but suggests that (i) FCA investigate insurance pricing practices and consider interventions that limit “price walking” (i.e. successive price rises) and (ii) explore how intermediaries can continue to benefit from the home insurance market.

Mortgages:  the FCA should find out more about mortgage customers who could switch but do not, and look at what measures can be taken to help or protect them if needed.

As some of the CMA’s recommendations are for regulators and government, it will be working alongside them as it undertakes further work in this area. An update will be provided to Consumer Forum (a forum led by the Minister for Consumer Affairs) and CMA will evaluate whether sufficient progress has been made in 12 months.


FIN. Team