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Fair Treatment of Existing Customers According to the CMA's Findings

Following the Competition and Markets Authority’s response to the super-complaint submitted by Citizens Advice, the Financial Conduct Authority have published an update which sets out the regulator’s current position on some of the issues highlighted in the response. The super-complaint related to five markets, of which the FCA regulate three; mortgages, cash savings and general insurance. The CMA, however, acknowledges that harm from loyalty penalties is not just confined to the five markets and is likely to be a much wider issue in many other markets, including roadside assistance, other insurance markets, pensions, and other subscription services.

Fair Treatment of Existing Customers According to the CMA's Findings

The CMA concluded that in each of the five markets, consumers who were not new customers were likely to be paying a substantial ‘loyalty penalty’, of varying degrees, depending on the market, product and the customer. The extra amount paid by longstanding customers was estimated to be just under £3bn over the six-month period that was investigated. This ‘penalty’ occurs when companies charge more to a long-term customer than to a new customer, meaning that some longstanding customers are unfairly penalised. The CMA found that some, very active, customers were able to get cheap deals, however, some customers do not realise they are paying more, or believe that the effort to switch deals is too high for the savings made, or are under the (false) impression that being a loyal customer will pay off in the long-run.

The CMA particularly highlighted the difficulty that some consumers face in shopping around and switching, which can be difficult, confusing and time consuming, challenges that are further impacted when the customer is vulnerable. That vulnerable customers are often those who can least afford to pay the loyalty penalty is a major factor in the CMAs recommendations, and in the FCA’s ongoing work.

The CMA acknowledge that introductory deals are not necessarily harmful, but problems arise when:

  • Suppliers make it more difficult than it needs to be for customers to exercise choice, and then exploit those who do not switch

  • The price gap is large, with some paying very high prices, or it affects many people

  • It particularly harms those who many be vulnerable such as the elderly, low income households, those with poor mental health

  • It happens in ‘essential’ markets

In response to the CMA’s conclusions, the FCA’s update states that the regulator had already begun work on harm in the three markets identified and is taking forward remedies following its study on the mortgages market, and intends to publish a consultation paper on the cash savings market later in the year. The market study into general insurance pricing practices in home and motor insurance is ongoing and the FCA will publish the interim findings during the summer. In addition, the FCA is working with the CMA and other regulators on the cross-cutting recommendations. As part of this work, the FCA are looking at the identification and fair treatment of vulnerable customers, and on fair pricing in financial services.

So, with an eye to the future, what can the financial services sector expect to see as a result of the findings following the super-complaint? Although the remedies and studies concern the three highlighted markets at the moment, it is possible that the FCA will look to ensure consistency across the sector with any new rules brought in to ensure the fair treatment of customers.

The conclusions drew attention to the barriers that some firms put in the way of those customers looking to change or get better deals. Practices such as imposing continual ‘stealth’ price increases or not giving customers enough warning before being rolled over or making it more difficult to leave than to sign up will be scrutinised by the regulators, with the CMA suggesting bolder use of existing enforcement and regulatory powers to tackle these and similar practices. The CMA have also made a recommendation to the government that legislative change may also be needed.

The CMA has also made a recommendation to regulators that they publish metrics on the loyalty penalty for each supplier, in order to hold suppliers to account.

Some of the recommendations are aimed at providing more help to individuals to get better deals, for example, by empowering intermediaries (such as Citizens Advice) to support switching, particularly in the case of vulnerable consumers. Similarly, regulators are being advised to capture and share best practice on ‘nudge’ remedies, which could be rolled out across markets.

Finally, the CMA has made a recommendation to regulators that they consider targeted pricing regulations, such as limiting price differentials, or price caps, alongside other measures where there is clear harm, particularly to protect vulnerable consumers.

There are also a number of market-specific recommendations, such as a requirement to move customers on bundled handset and airtime contracts onto a fairer tariff once their minimum contract period ends, and a recommendation to Ofcom that it considers a number of possible interventions including tackling broadband legacy pricing, and targeted safeguard caps to protect vulnerable consumers.

For the FCA, the major recommendations include support of a ‘Basic Savings Rate’ for the cash savings market, a recommendation that the FCA investigate insurance pricing practices, and consider pricing interventions that limit price walking, and an exploration of how intermediaries can continue to benefit the home insurance market.


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