Crackdown on consumer 'loyalty penalty'

The so-called 'loyalty penalty' - where consumers are charged more when they have stayed with the same company for some time - is set to be stamped out under new regulations.

The CMA crackdown will aim to stamp out the "loyalty penalty"
The CMA crackdown will aim to stamp out the "loyalty penalty"

The Competitions and Markets Authority (CMA) upheld a Super Complaint made by Citizens Advice over concerns that people who stay with their provider can end up paying significantly more than new customers.

It said it had found that consumers were being ”exploited” and face a “loyalty penalty” of around £4 billion a year. It also found that vulnerable people, including the elderly and those on a low income, may be more at risk of paying the loyalty penalty.

Sign up to our daily newsletter

It said the new rules would apply to five markets: mobile; broadband; cash savings; home insurance and mortgages and added that it had also launched investigations in the anti-virus software market, as a first step in a wider programme of enforcement in this area.

The CMA acknowledged that it had not “done enough” to tackle the problem and unveiled a series of eight reforms.

It said: “Overall, we have found that the loyalty penalty is significant and impacts many people, including those who can least afford it. Customers rightly feel ripped off, let down and frustrated. They should not have to be constantly ‘on guard’ or spend hours negotiating to get a good deal. This erodes people’s trust in markets and the system as a whole.”

The CMA is recommending government and regulators crack down on harmful business practices using enforcement powers, stating clearly the principles businesses should follow and holding firms publicly to account for their actions. Most radically, it also suggests that “targeted price caps” should be put in place to protect the people worst hit.

Under the reforms, it said Ofcom should put regulation in place to stop mobile providers charging pay-monthly customers the same rate once they

have effectively paid off their handsets at the end of the minimum contract period. The FCA, meanwhile should “look closely” at evidence that insurance firms continually raise prices and take action to prevent people being exploited. This should include considering “pricing interventions”.

Consumer groups welcomed the reforms.

Jenni Allen, managing director of Which? Money, said: “It is right that the CMA has recognised the sheer detriment this unfair practice causes many consumers, costing billions of pounds a year. Today’s announcement must lead to concrete results to stop customers being hit with these excessive charges. All the relevant regulators must act urgently to bring about an end to this bad practice.”

Richard Neudegg, head of regulation at, said: “It’s not news that loyalty doesn’t pay - it has always been true that consumers who are willing to shop around get a better deal than those who don’t. We are pleased to see the CMA identify this as an area for improvement, to ensure the power to get better deals is placed firmly in the hands of consumers.”