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UK’s ‘£4bn loyalty penalty’ to be investigated by regulators

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Regulators are to investigate claims consumers are forking out over £4bn annually to utility providers in a so-called loyalty penalty.

The Competition and Markets Authority (CMA) said it would examine issues raised by Citizens Advice in a super complaint, which alleged households were being exploited by mobile, broadband, home insurance, mortgage and savings providers.

It was lodged as the government confirmed it had ordered a separate Smart Data Review to look at speeding up the
development of services such as automatic switching apps to make bills cheaper.

Citizens Advice, which is among a small number of consumer interest groups with powers to lodge formal complaints with regulators, said there was a widespread practice of overcharging people who failed to shop around for better deals.

It calculated that households were losing £877 per year on average – a total of £4.1bn.

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Citizens Advice said those most likely to be worst affected were vulnerable customers, such as the elderly.

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The savings market is among those targeted in the super complaint

It gave an example of helping a couple in their 90s whose daughter approached the charity after finding her parents were paying nearly £1,000 a year too much on their home insurance.

They had been with the same provider for just six years.

The charity did not include energy payments in its calculations because of the looming price cap on default tariffs ordered by the government.

Chief executive Gillian Guy said: “It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal.

“As a result of this super complaint, the CMA should come up with concrete measures to end this systematic scam.”

CMA senior director Daniel Gordon responded: “We will now carefully consider the concerns raised by Citizens Advice, and any further evidence on this issue.

“Our response will set out the CMA’s views on this important issue and any next steps we think are needed to make sure businesses don’t take unfair advantage of their long-standing customers.”

Eric Leenders, from banking lobby group UK Finance, said: “UK Finance and its members will carefully consider the issues raised by Citizens Advice and respond in due course.

“The industry has already implemented a number of measures to further improve competition in the mortgages and savings market, including communicating more clearly with savers about the rates they receive and helping longstanding
mortgage borrowers switch to a better deal.

“We would always encourage customers to shop around and find a deal that best suits their needs and will continue working with the regulators to make this as easy as possible, including through standard terms and price comparison tools.”

Association of British Insurers director general Huw Evans said: “In any market where there is regular switching and fierce competition for new business, good deals are available to those who shop around but this does mean
long-standing customers can lose out.

“The insurance industry recognises this is a problem and earlier this year became the first and only sector to take voluntary, industry-wide action to tackle it.

“This includes commitments from firms to review premiums charged to customers who have been with them for five years, and the industry publishing a report on progress within two years.”

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