Companies that rip off loyal customers facing major crackdown

Insurance, mobile and broadband companies that rip off their loyal customers by £4billion through ‘stealth price rises’ face crackdown

  • The Competitions and Market Authority recommends penalties for rip-off firms
  • Follows 3-month investigation into insurance, mobile, broadband, cash savings and mortgages where existing customers are charged more than new ones

Companies that rip off their loyal customers by more than £4bn every year are facing a major crackdown.

The competition watchdog says there should be powers to cap prices, impose fines and name and shame firms that penalise households that do not shop around.

It follows a three-month investigation into five markets – home insurance, mobile, broadband, cash savings and mortgages – where existing customers are routinely charged more than new ones.

The recommendations – by the Competitions and Market Authority – are a victory for Money Mail which has long campaigned for an end to the so-called loyalty penalty, estimated to cost households more than £4billion a year.

Investigators found that consumers were left feeling ‘ripped off, let down, and frustrated’ 

The CMA says regulators for each sector – for example the Financial Conduct Authority for banks and insurers – should be handed new powers.

Andrea Coscelli, chief executive of the CMA, said: ‘Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated.

‘They should not 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.’ The CMA was prompted to act by a complaint from Citizens Advice.

It said that during its investigation it discovered alarming industry practices including sneaky price increases each year, high exit fees, contracts that are difficult to cancel and policies that renew automatically without enough warning. 

Millions are affected, from a million mortgage customers to 12million with insurance.

The CMA said the problem is also likely to occur in other markets where contracts roll over, such as computer anti-virus software subscriptions.

Vulnerable customers including the elderly were considered to be particularly at risk to unscrupulous practices

Why parents pay more to insure the house

Parents are being charged an extra £35 a year for their home insurance.

The more children they have, the more they pay. Living with one child adds an average of an extra £18 a year to your bill, according to research.

Having two children increases home insurance premiums by an average of £36 a year, whereas three children adds on an extra £69.

The research by data firm Consumer Intelligence suggested parents pay 27 per cent more for home insurance on average.

John Blevins of Consumer Intelligence says insurers contend that the risk of accidental damage claims is increased in a family house.

But Martyn James of Resolver, the complaints website, says: ‘Having three children might mean more breakages at home. But families with children typically spend more time in the house, meaning they are less likely to make a theft claim.’

The vulnerable, such as the elderly, disabled or those on low-income, may be most at risk. The watchdog has demanded targeted price caps for such customers.

It also wants firms be held to account for ripping off loyal customers. Regulators should publish the size of the loyalty penalty for each supplier each year, it suggested.

The watchdog also made specific recommendations in the five markets. It suggested broadband firms set targeted price caps for vulnerable people and explore collective switching, in a similar way energy companies do. Customers can band together and move to a new provider, which offers a better rate in return for their business.

Mobile phone providers should not charge contract customers the same rate after they have paid off their handset. More should be done to make people aware of packages that offer SIM cards only. The CMA said the FCA should investigate insurance pricing and intervene where necessary. It should also find out more about the 10 per cent of mortgage customers that could switch to cheaper options but do not.

Gillian Guy from Citizens Advice said these were strong words from the CMA and she expected it to follow through.

She said: ‘The CMA is clear that nothing should be off the table when it comes to tackling the loyalty penalty, including targeted price caps, so we’re expecting bold action. The CMA has set a six-month deadline for progress and expectations are high.  

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