Citizens Advice calls for CMA to investigate the 'loyalty penalty' in essential markets

Citizens Advice calls for CMA to investigate the 'loyalty penalty' in essential markets

Citizens Advice has today issued a super-complaint, urging the CMA to investigate whether disengaged and loyal consumers are being charged excessive prices in essential markets such as energy, mobile and financial services. Citizen’s Advice believes that a 'loyalty penalty' is costing each longstanding consumer almost £900 per year and disproportionately affects vulnerable and low-income customers. The CMA is required to respond to a super-complaint within 90 days to say whether they believe there is an issue and how they intend to deal with it.

In these markets prices typically follow the structure of cheap initial deals which then revert to a higher price for consumers that don’t switch to a new product. The regulators have previously acknowledged that this pricing strategy has distributional impacts on consumers with the most engaged consumers benefitting the most from introductory deals. So far regulators have taken varying approaches to address this.

In the Personal Current Account market, the CMA’s remedy package was focussed and increasing consumer engagement and switching. Other regulators are looking more towards supply side interventions. The FCA is currently considering introducing a Basic Savings Rate to restrict the minimum rate banks can pay longstanding consumers. Ofgem has gone a step further by introducing a price cap on all default tariffs.

Citizens Advice argues that these remedies do not go far enough. It is calling to the CMA to launch a market study and identify remedies that would serve loyal consumers rather than “ripping them off” if they don’t switch every 1-2 years.

Antti Lemberg, head of Frontier’s Financial Services team, said “The key issue is this: competition for new customers requires introductory pricing, but this necessarily means that less active customers end up paying more.  Further clarity on this trade-off would be a great positive outcome from the CMA’s work.”

Frontier advises on these and other regulatory and commercial issues in financial services, energy, mobile and other markets.

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