Citizens Advice has revealed customers who stay loyal to their providers are losing out on over £4 billion a year. The national charity has lodged a super-complaint with the Competition and Markets Authority (CMA), calling for the regulator to outline how the problem can be fixed.

The practice of overcharging loyal customers is widespread and Citizens Advice has repeatedly warned that loyal consumers are being ripped off. Research by Citizens Advice found that across 5 essential markets (mobile, broadband, home insurance, mortgages and savings):

  • British consumers lose £4.1 billion a year to the loyalty penalty.
  • 8 in 10 people are paying a significantly higher price, in at least one of the markets, for remaining with their existing supplier.
  • The loyalty penalty is, on average, £877 per year – equal to 3% of the average household’s total annual expenditure.
Gillian Guy, Chief Executive of Citizens Advice, said “It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal. As a result of this super-complaint, the CMA should come up with concrete measures to end this systematic scam.”

The Government’s price cap in the energy market will bring down loyal customers’ bills by £75 per year on average. Citizens Advice analysis shows that excessive prices for loyal customers can be just as high – if not more so – in other markets. The charity also found the loyalty penalty is disproportionately paid by vulnerable consumers, such as older people and people with mental health issues. These groups are particularly likely to struggle with switching.

This is the fourth super-complaint Citizens Advice has made since being given the power in 2002. Their complaint on payment protection insurance (PPI) in 2005 helped to generate a huge win for consumers, with at least £32.2 billion returned to customers in refunds and compensation so far.

Citizens Advice have identified the scale of the problem in 5 essential markets – but it knows loyal customers are penalised elsewhere too. By submitting this complaint the organisation is asking the CMA to investigate all markets where the loyalty penalty exists. Because the sectors are so diverse there is no one-size-fits-all solution. The CMA will need to work closely with other regulators and the Government to ensure the right action is taken in each market.

Guy continued“It’s completely unacceptable that consumers are still being ripped off for being loyal to companies they rely on every single day. Regulators and Government have recognised the loyalty penalty as a problem for a long time – yet the lack of any meaningful progress makes this super-complaint inevitable.”

“The Government’s price cap in the energy market will protect some loyal customers. However, there’s still a long way to go in other sectors. The loyalty penalty is clearly unfair – 89% of people think it is wrong. The CMA needs to act now to stop people being exploited.”

In response to the super-complaint in a statement, the Financial Conduct Authority (FCA) said that it has been concerned about the issue of long-standing customers being charged more for some financial products than new customers for some time.

Andrew Bailey, Chief Executive of the FCA said “Citizens Advice have raised a number of important issues and we will work closely with the CMA as they investigate this super-complaint. We expect firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing. It is important to get the balance right so that existing customers do not miss out on the benefits of competition and innovation, including when they purchase or renew their general insurance products. The general insurance market study we have announced today will help us examine the issues we have already identified in the market in more detail.”

Eric Leenders, Managing Director, Personal Finance at UK Finance, said “UK Finance and its members will carefully consider the issues raised by Citizens Advice and respond in due course. The industry has already implemented a number of measures to further improve competition in the mortgages and savings market, including communicating more clearly with savers about the rates they receive and helping longstanding mortgage borrowers switch to a better deal.”

“We would always encourage customers to shop around and find a deal that best suits their needs and will continue working with the regulators to make this as easy as possible, including through standard terms and price comparison tools.”

Zopa Chief Executive Office, Jaidev Janardana, said “Banks have been taking advantage of their most loyal savers for decades. At Zopa, we believe in providing fair and simple products to our customers – so for the last 13 years we have always offered the same rate of return for both new and existing customers of our investment product. This commitment was further demonstrated by our recent rate increase by 0.5% points to 5.2%. We will do the same for our fixed term savings product when it launches.”