Firms Overcharging Loyal Customers Could Be Fined

Firms could soon face fines for overcharging loyal customers under plans announced by the government.

The government has announced it will hold a consultation on whether the Competition and Markets Authority should be given the power to impose fines on firms that overcharge or mislead customers without having to go to court. It comes after the charity Citizens Advice filed a ‘super-complaint’ about the so-called ‘loyalty penalty’ in September last year, causing the CMA to launch an investigation.

The loyalty penalty refers to the fact that many consumers who have stayed with one company for a long time are charged more than new customers. There have long been calls for reforms to the practice, which according to Citizens Advice costs British consumers around £4.1 billion each year.

Citizens Advice conducted a study that revealed the loyalty penalty was costing mobile, broadband, home insurance, mortgage and savings customers an average of £877 a year. It also found that around 80% of customers in these markets ended up paying more for staying loyal to one company.

“For far too long, many big companies have been getting away with harmful trading practices which lead to poor services and confusion among customers who have parted with their hard-earned cash,” said the Prime Minister Theresa May. “The system as it stands not only lets consumers down but it also lets down the vast majority of businesses who play by the rules.

“It is high time this came to an end and today we are confirming our intention to give much stronger powers to the CMA, to strengthen the sanctions available and to give customers the protection they deserve against firms who want to rip them off.”

As well as stopping firms from imposing out-of-contract price rises, the proposed new rules will be designed to prevent companies from making misleading claims, setting unfair terms and conditions, and having extortionate exit fees attached to their contracts.  The rules will also ensure that mobile customers aren’t charged the same monthly rate once they have paid off the cost of their handset.

The government also plans to extend the powers given to the CMA to both Ofcom – the telecoms industry regulator – and the Financial Conduct Authority, who regulate the banks and insurance companies.

 “The key to successful markets is ensuring that they work for the benefit of consumers and that unfair practices are tackled effectively, as the majority do,” said the business secretary, Greg Clark. “I strongly believe that consumer loyalty should not be exploited and nor should consumers have to work so hard to get a fair deal. We have already shown our willingness to take action through our energy price cap, which means every household is protected from unjustified price rises.

“We are committed to ensuring consumers are not unfairly targeted and penalised for their loyalty and that they can access quality products and services for a price that is competitive and fair. A core part of how we do this is by making sure all consumers, including the vulnerable, can benefit from the emergence of smart data and technology to access better deals from innovative digital services.”