The competition and consumer authority looked at five markets highlighted by a “super-complaint” from Citizens Advice, including cash savings, mortgages, household insurance, mobile phone contracts and broadband.
The review uncovered a range of damaging practices by firms: 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 sufficient warning their contract will be rolled over.
Millions of people are affected in these markets, from around 1 million in the mortgage market to nearly 12 million in the insurance market, and the CMA noted that the “loyalty penalty” was also likely to arise in other markets where contracts are rolled over to a higher price.
People are left “feeling ripped off, let down and frustrated,” said Andrea Coscelli, Chief Executive of the Competition and Markets Authority.
“They shouldn’t have to be constantly ‘on guard’, spending hours searching for or negotiating a good deal, to avoid being trapped into bad value contracts or falling victim to stealth price rises.”
Accordingly, the CMA has set out a “robust package” of reforms which include targeted price caps where necessary in order to protect the most vulnerable.
Firms should be publicly held to account for charging existing customers much more, the CMA recommended, and regulators should publish the size of the loyalty penalty in key markets and for each supplier on a yearly basis.
More specifically, it said that mobile providers should stop charging pay-monthly customers the same rate once they’ve effectively paid off their handsets at the end of the minimum contract period, and that the Financial Conduct Authority should consider pricing interventions to stop insurance firms continually raising prices.
“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,” Coscelli stated.
Sourced from CMA; additional content by WARC staff