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Citizens Advice launches 'super complaint' over £4 billion loyalty penalty

Citizens Advice has lodged a 'super complaint' with the competition watchdog after finding that customers who remain loyal to firms are overpaying by £4 billion a year.

The charity says the practice of overcharging loyal customers is ongoing and widespread, and has called on the Competition and Markets Authority (CMA) to "act now to stop people being exploited".

Research by the charity has found that British consumers are losing £4.1 billion a year across the mobile, broadband, home insurance, mortgages and savings markets to the so-called 'loyalty penalty'. It says eight out of 10 consumers pay a significantly higher price to at least one of their providers for remaining with them.

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What is a 'super complaint'?

A super complaint can be made by a Government-designated consumer group to ask a regulator to investigate an issue or a market that it believes is working against the public interest.

The regulator must publicly respond to the complaint within 90 days saying if it believes it is an issue, and how it intends to deal with it.

This is the fourth super complaint Citizens Advice has made since being given the power to submit them in 2002.

What issues has Citizens Advice found?

Citizens Advice says the loyalty penalty – the amount a customer loses by being loyal – is £877/year on average. This is equal to 3% of the average household's total annual expenditure.

It says that the Government's price cap in the energy market would bring down loyal customers' bills by £75/year on average, but that "excessive prices" for those who remain with the same provider in other markets could be just as high, if not more so.

The charity also found the loyalty penalty is disproportionately paid by vulnerable consumers, such as elderly people and those with mental health issues – groups that are particularly likely to struggle with switching.

Government to review 'smart' ways to tackle problem

Following the news of the super complaint, the Government has published details of a new review which it says will help put an end to loyalty penalties.

The review, which is called the Smart Data Review, will look at speeding up the development of innovative new services such as automatic switching apps to make bills cheaper.

The review will report to a newly-established forum, chaired by Consumer Minister Kelly Tolhurst, which brings together ministers and chief executives of sector regulators. 

What does Citizens Advice say?

Citizens Advice is asking the CMA to investigate all of the markets where a loyalty penalty exists.

Chief executive Gillian Guy said: "It beggars belief that companies in regulated markets can get away with routinely punishing their customers simply for being loyal. 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% of people think it is wrong. The CMA needs to act now to stop people being exploited."

The competition watchdog will investigate

The CMA has confirmed it will investigate the concerns, along with regulators such as the Financial Conduct Authority and Ofcom, and publish a response within 90 days.

CMA senior director Daniel Gordon said: "We will now carefully consider the concerns raised by Citizens Advice and any further evidence on this issue.

"Our response will set out the CMA's views on this important issue and any next steps we think are needed to make sure businesses don't take unfair advantage of their long-standing customers."