On 19 December the Competition and Markets Authority (CMA) announced its response to a super-complaint received from Citizens Advice, in which practices in both the insurance and mortgage and savings industries had been highlighted. (The essence of Citizen’s Advice’s complaint was that, as a result of the restriction of many pricing deals to new customers, loyal or inactive customers were losing out and suffering a “loyalty penalty”. Click here for our report on the original complaint).

In their response to this complaint the CMA stated that:

“Overall, we have found that the loyalty penalty is significant and impacts many people, including those who can least afford it. Customers rightly feel ripped off, let down and frustrated. They should not have to be constantly ‘on guard’ or spend hours negotiating to get a good deal. This erodes people’s trust in markets and the system as a whole.”

The CMA has made a number of recommendations for reforms in this area. In particular:

  • The CMA has indicated that it means to use its existing consumer enforcement powers, and collaborate with other regulators, to intervene directly, and will be seeking to strengthen these powers (and sanctions) where needed, to stop harmful business practices.
  • The CMA has developed a set of core principles for businesses to follow across markets and will be building on these. It is actively considering also whether these should be placed on a statutory/regulatory footing. These include:
    1. exit/entry equivalence: people must be able to exit a contract at least as easily as they can enter it;
    2. auto-renewal should generally be on an ‘opt in’ basis upfront, and include a clear and prominent option without auto-renewal in most markets;
    3. exit fees should not be used after any initial minimum/fixed term;
    4. auto-renewal onto a fresh fixed term should not generally be used;
    5. customers must be sufficiently informed about the renewal and any price changes (through sufficient notifications) in good time; and
    6. switching should generally be managed by the gaining supplier so that customers do not have to contact their existing supplier if they want to move.
  • The CMA intends to harness reputational measures designed to put pressure on businesses by publishing data on the scale and size of the loyalty penalty, and which suppliers have the highest price difference.
  • The CMA feels that it, and other and regulators, have relied too heavily on ‘information remedies’ to help consumers. Measures to support consumers more actively are being considered including empowering intermediaries to support switching (for example, by giving a greater role to local consumer-facing advisory organisations, such as Citizens Advice); and
  • The CMA is considering targeted pricing regulations such as limiting price differentials or price caps, alongside other measures where there is clear harm, particularly to protect vulnerable consumers.

The CMA has welcomed the FCA’s own market studies in this area (see our report here) and has recommended that the FCA considers active pricing interventions and explores methods to facilitate switching by consumers, (including by looking at whether ‘semi-smart’ solutions can improve the existing infrastructure of price comparison websites).

In response to the CMA’s findings Christopher Woolard, Executive Director of Strategy and Competition at the FCA, commented:

“The treatment of long-standing customers remains a priority for the FCA. We have worked closely with the CMA since they received the super-complaint. We will continue to do this. It is important that this issue is tackled and harmful practices are stopped.”