As reported by Credit Connect last month Citizens Advice lodged a “super complaint” with the Competition and Markets Authority (CMA). The super-complaint is in relation to a £4 billion a year “loyalty penalty” that on average amounts to £877 a year per household across five key markets; mobile, broadband, home insurance, mortgages and savings. The charity estimates that 8 in 10 people in the UK are paying a significantly higher price in at least one of the markets. According to Citizens Advice, the practice of overcharging loyal customers relative to those that switch supplier is widespread and occurs in other markets beyond the five listed.

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 more likely to struggle with switching supplier. A clear example is energy firms overcharging loyal customers, particularly the elderly.

Citizen Advice viewed the super-complaint as inevitable stating that although regulators and Government had recognised the loyalty penalty as a problem for a long time there had been a lack of any meaningful progress to address it. In response, the Financial Conduct Authority, FCA, said that Citizens Advice had raised a number of important issues and that they will work closely with the CMA as they investigate the super-complaint.

The assessment of the Government and regulators by Citizen Advice is damming especially given recent initiatives such as the Government’s April Green Paper on Modernising Consumer Markets. April’s Green Paper unveiled by the Business Secretary, Greg Clark, proposed to ensure new technology and data are used to benefit consumers, not to disadvantage them and to establish a set of principles that will underpin how vulnerable consumers can expect to be treated.

Another Government initiative proposed in August 2017 but with its role and remit to be clarified following consultation is the Centre for Data Ethics and Innovation. It will identify the measures needed to strengthen and improve the way data and “AI” are used and regulated. This will include articulating best practice and advising on how to address potential gaps in regulation. The Centre will not itself regulate.

Fortunately, at least one regulator appears to be dealing with the malpractice in the use of new technology. In a separate review the Civil Aviation Authority is investigating how airlines decide where to seat passengers that have booked as part of a group and whether any airlines are pro-actively splitting up groups of passengers when, in fact, they could be sat together. There is concern that these seating algorithms are being used, be it deliberately or negligently, to separate groups, including families with children, if they do not pay for seat allocation.

Within industry and government there is a growing view that “AI” will throw up new challenges such as computer systems identifying “vulnerable” consumers for higher charges unless safeguards and human intervention is put in place.

Whether the process for pricing products or identifying a given product’s customer base is simple or complex firms are responsible for the resulting conduct risk. Outcomes should be screened to ensure that there is no skew that would penalise vulnerable customers be it mistakenly or deliberately.

The industry should take note that a previous super-complaint lodged by Citizens Advice in 2005 in relation to the FS industry’s conduct in miss-selling of payment protection insurance has so far resulted in £32.2bn returned to customers in refunds and compensation.

John Willoughby, Director, elanev  (Winner of Credit & Collections Technology Awards for Vulnerable Customer Identification & Screening Solution)