The Competition and Markets Authority (CMA) has announced a wide-ranging review of pricing across several industries with potentially far-reaching consequences for companies involved.
The review was sparked by a ‘super-complaint’ from the Citizens Advice Bureau (CAB) that 80% of bill payers are being charged ‘significantly higher prices' for staying with their existing supplier in at least one essential market, what has been since dubbed a 'loyalty penalty'.
The CAB identified mortgage lenders, insurance companies, mobile phone and broadband providers as the worst offenders for charging existing customers higher prices than new ones.
CONSUMERS GETTING A RAW DEAL
In its press release the CMA says there is a ‘loyalty penalty’ of around £4bn a year and that vulnerable people, including the elderly and those on low incomes, could be at risk of over-paying.
Andrea Coscelli, chief executive of the CMA, says that ‘millions of loyal or vulnerable customers are being taken advantage of each year and end up paying more than they should’, adding that ‘this must come to an end’.
The CAB sent its ‘super-complaint’ to the CMA in September to highlight what it called ‘excessive prices for disengaged consumers’.
This is the first complaint of its type that CAB has made to the CMA in seven years and runs to over 70 pages.
It says there is ‘deep, structural price discrimination against disengaged and loyal consumers’ in several essential markets due to lack of competition and says the scale of the problem justified its ‘super-complaint’.
THE GLOVES ARE OFF
In its no-holds-barred press release the CMA blames ‘damaging practices’ by firms seeking to exploit ‘unsuspecting customers’ with stealth price rises, costly exit fees, complicated processes to cancel or switch providers and a lack of warning that contracts will be rolled over.
It also puts forward recommendations to regulators and the government ‘to help stop loyal consumers being ripped off’.
Suggestions include publicly holding companies to account for charging existing customers more and where necessary the introduction of 'pricing interventions'.
In the insurance market it says there is ‘clear evidence of firms continually raising prices’ and suggests that the Financial Conduct Authority (FCA) might consider introducing price caps.
The FCA announced in October that it was looking into pricing in the insurance market, in particular how firms treat customers when it comes to renewals.
In the mobile phone market it explicitly calls on providers to stop charging pay-monthly customers the same rate once they have paid off their handsets at the end of the minimum contract period.
This will be music to consumers’ ears as they look to reduce essential spending where they can in the face of rising food prices and high fuel prices.
However it will rock the mobile phone and broadband firms on their heels and for household and motor insurance firms it is a further pummeling on top of the FCA probe into pricing.
