Citizens Advice files super complaint over utility customers' £4bn 'loyalty penalty'

Mobile, broadband, home insurance, mortgage and savings customers who stay with their provider pay an extra £877 per year

The most vulnerable, including the elderly and people suffering from mental health problems, are most likely to be affected by overcharging, a charity has said (Getty)

Citizens Advice has lodged a super complaint with the competition watchdog after finding that customers who stay with the same provider are paying £4.1bn extra in “loyalty penalties”.

The charity called on the Competition and Markets Authority (CMA) to “act now to stop people being exploited” by the widespread practice of overcharging loyal customers.

Mobile, broadband, home insurance, mortgage and savings customers who stayed with their provider pay an extra £877 a year, Citizens Advice said.

The sum equates to about 3 per cent of the average total annual expenditure for a UK household.

The most vulnerable, including the elderly and people suffering from mental health problems, are most likely to be affected as they tend to switch utility providers less frequently, Citizens Advice found.

It highlighted one case involving a couple, both in their 90s, whose daughter discovered her parents were paying nearly £1,000 a year too much for home insurance after six years with the same company.

Despite the government’s price cap bringing down bills by £75 per year on average in the energy market, it does not cover other markets where remaining with the same provider could be just as high, if not more, said the national charity.

“It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal,” said Gillian Guy, chief executive of Citizens Advice.

“As a result of this super complaint, the CMA should come up with concrete measures to end this systematic scam.

“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 loyalty penalty is clearly unfair – 89 per cent of people think it is wrong. The CMA needs to act now to stop people being exploited,”

A super complaint can be made by any government-designated consumer group in order to ask regulators to investigate an issue or practice working against the public interest.

The CMA confirmed that it would investigate the complaint together with the Financial Conduct Authority and Ofcom and would publish a response within 90 days.

FCA ​chief executive Andrew Bailey said Citizens Advice had raised a number of important points.

“We expect firms to look after the interests of all customers and treat them fairly, whether they are new or long-standing,” he said.

“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 will help us examine the issues we have already identified in the market in more detail.”

Richard Neudegg, head of regulations at uSwitch, said: “Citizens Advice is right to highlight that vulnerable consumers can often end up paying too much on their bills because there isn’t enough support from companies to ensure they get a fair deal.

“While there are some schemes to financially support these customers in different sectors, these can be difficult to access and don’t have to be available through all providers.

“As always, being switched on about the cost of your bills and taking action when companies’ offers aren’t good enough can lead to savings running into the £100s every year. The power should always be in customers’ hands and it is often more straightforward than people think to access better value across many household bills.”