UK firms overcharging loyal customers could soon face instant fines

Firms that exploit consumer loyalty by overcharging longstanding customers could soon face instant fines under plans unveiled by the government.

The “loyalty penalty” is estimated to be costing customers more than £4bn a year, according to consumer groups.

The government is to consult on whether to give the Competition and Markets Authority (CMA) new powers to impose direct fines where consumer law has been broken. This means the competition watchdog would not have to go through the courts and would be able to intervene earlier and move more quickly.

Ministers believe this will act as a powerful deterrent to firms that are harming consumers with misleading claims, unfair terms and conditions and hard-to-exit contracts.

They have also proposed new rules to ensure mobile providers end the practice of charging customers the same monthly rate once they have paid off their handsets.

The government also wants to hand the powers proposed for the CMA to other regulators – Ofcom, the telecoms watchdog, and the Financial Conduct Authority (FCA), which oversees banks and insurers.

Customers who stay loyal to their mobile, broadband or insurance providers are paying as much as £1,000 a year more than serial switchers – costing them a total £4.1bn more – according to research from the charity Citizens Advice, which filed a “supercomplaint” last year, prompting the CMA to launch an investigation.

Theresa May said: “For far too long, many big companies have been getting away with harmful trading practices which lead to poor services and confusion among customers who have parted with their hard-earned cash.

“It is high time this came to an end and today we are confirming our intention to give much stronger powers to the CMA, to strengthen the sanctions available and to give customers the protection they deserve against firms who want to rip them off.”

The CMA’s chairman, Andrew Tyrie, said the government’s announcement was a “big step in the right direction”. Its chief executive, Andrea Coscelli, added: “Our investigation revealed that loyal customers are being trapped in poor-value contracts or paying more than they should. This has to stop.”

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But Citizens Advice said the measures were not enough. Gillian Guy, its chief executive, welcomed the clampdown on the mobile phone loyalty penalty, which she said had cost consumers £341m since the charity made its supercomplaint in September.

“But this is just the tip of the iceberg,” she said. “While the government’s announcement is welcome, we’re disappointed by the lack of action from regulators. The FCA and Ofcom have had six months since the CMA issued its findings on our supercomplaint and there has been little progress. They need to set out their plans urgently on how they will tackle this systematic scam.”

Caroline Normand, director of advocacy at the consumer group Which?, said the government’s action on “excessive” loyalty penalties should act as an incentive for firms to give consumers a fair deal.