James Walker: Don’t be taken for a fool by hidden loyalty charge

Keep tabs on what you have signed up for

For decades, a huge range of industries have made billions through this sneaky “open” secret. A loyalty charge is where you pay extra money every time an agreement like a policy or annual contract you have renews. People who stick with the same service provider out of loyalty or convenience face increases in monthly or annual payments – yet new customers pay much less for the same agreement.

Recently the Financial Conduct Authority, which regulates the financial services industry, announced a review that estimated we’re potentially paying out over £1.2 billion a year extra in home and motor insurance policies alone, with six million people paying £200  a year more than they  should be.

Last year, the Competitions and Markets Authority investigated five industries; savings, mortgages, insurance, mobile and broadband service providers and found that an astonishing £4 billion extra a year was being paid out by loyal customers.

Though these regulators and government organisations have made it clear loyalty charges are finally being clamped down on, don’t expect changes overnight. But make a complaint – don’t be put off. It’s dead easy.

Here are a few tips to help you tackle overcharging by businesses you’ve stayed  loyal to.

 When you sign a contract, put a note into your calendar for when the contract runs out. Then go back a month and put a reminder in so you’re prepared in advance.

 Shop around as the contract renewal date approaches. Keep an eye on the news for bad/good deals and businesses that have been warned or fined.

 Never assume your loyalty means you’ll be treated better. You won’t and you’ll be overcharged.

 Be wary of contracts that run over a year if you’re likely to change your lifestyle – you may have to pay fees to get out of them.

If you think you’ve been overcharged, here’s what you should do:

 Start by turning detective. Find out when you signed up to the contract and when the original one was supposed to expire. If you’re paying for a phone or other goods as part of the contract, look for the date the item is paid off (it will be on your bill or online account).

 Go on to the website for the business and see what you would be charged if you were a new customer for the same package. It’s worthwhile checking on comparison sites too, in case there are even cheaper deals around. Take some screenshots to support your case.

 Contact the business and ask them to explain why you’re paying a higher price than a new customer and ask them to reduce your bill or match the price. Be prepared to vote with your feet.

 The rules don’t say that the business has to refund what it’s overcharged you. But you can make a complaint and ask for the money back – and there are ombudsmen you can go to for free for all the industries that have been investigated so far.

Most importantly, spread the word. Chances are you have a relative or friend who should be told of the savings they could be making by shopping around.