CMA investigation into the loyalty penalty

CMA investigation into the loyalty penalty

A report published today by the CMA is a progress report setting out the work and progress that has been made over the last 12 months.

In September 2018, CMA received a super-complaint from Citizens Advice. There followed an investigation into the loyalty penalty in 5 markets: mobile phone contracts, broadband, household insurance, cash savings and mortgages. The CMA uncovered continual year on year price rises, costly exit fees from contracts, time-consuming and difficult processes to cancel contracts or switch to new providers, and auto-renewal policies that switched unsuspecting customers onto more expensive contracts, often without sufficient warning. In its response to the super-complaint, the CMA made a number of recommendations to Ofcom, the FCA and other regulators to help them better protect consumers. It also launched its own investigations into auto-renewal practices in two sectors.

The 2 relevant areas for BSG are:

Mobile – Ofcom has introduced new rules on end of contract negotiations (come into effect next month) and annual best tariff notifications. Customers will be told when their contract is coming to an end and shown the best deals available, including SIM-only deals. As well as this, almost all of the major mobile phone providers have committed to reduce bills for people who have paid off their contracts in full. As part of this, the regulator has asked providers to agree to voluntary commitments to tackle the issue of customers continuing to pay a higher rate once their handsets are paid off. Whilst these are all positive steps in the right direction, the CMA is concerned that only two providers have agreed to fully address its concerns about customers still paying a higher rate once handsets are paid off, and one major provider has not agreed to offer any commitments. Ofcom will continue to monitor this going forward.

Broadband – Ofcom has introduced new rules to ensure customers will be told when their contract is coming to an end and shown the best deals available. Again, these come into effect from February. Ofcom has also secured voluntary commitments in this market. Some providers have promised to carry out annual price reviews for vulnerable customers to check they are on the best deal. Others have committed to reduce the difference between the monthly prices paid by new, or re-contracted customers, and those who are have finished their contract. Whilst this is a welcome step, more is required. Ofcom is planning further work and will report in the coming months.

The CMA also continues to call on the Government to bring forward its promised Consumer White Paper which brings with it the extra powers to help the CMA to act even more decisively on behalf of consumers and fine firms that break the law.

Full details can be found here.