The Competition and Markets Authority (CMA) has announced an extended deadline of six months to ensure regulators take effective action tackling the loyalty penalty.

In a December 2018 report, the CMA had uncovered bad practices by firms across five markets that included the mortgage market, as well as mobile phone contracts, broadband, household insurance and cash savings.

These included continual year-on-year price rises, costly exit fees from contracts, time-consuming and difficult processes to cancel contracts or switch to new providers, as well as auto-renewal policies that switched unsuspecting customers onto more expensive contracts, often without sufficient warning.

The report also revealed consumers were being overcharged by approximately £4bn a year across these markets.

The CMA had previously been clear that it wanted to see urgent action, with both the FCA and Ofcom – the regulators that govern the sectors affected by the loyalty penalty – agreeing to update on their progress within 12 months.

In terms of mortgages, the CMA indicated yesterday that it was aware of FCA research on mortgage switching, but would like to see swift progress in developing ways that help or protect longstanding customers who could switch but do not. It also suggested it would like to see a clear timetable for the implementation of any changes.

Citizens Advice, which submitted the ‘super complaint’ over the loyalty penalty to the CMA that led to the 2018 report, has suggested that while some progress had been made, it is supporting the CMA’s decision to extend the deadline – adding that regulators should use the time to tackle the loyalty penalty ‘once and for all.’

The loyalty penalty is calculated by taking the difference between the price paid on an introductory offer and the standard variable rate to which the customer is moved onto once the offer has expired.

Citizens Advice chief executive, Dame Gillian Guy, commented: “The loyalty penalty is a huge problem, and too often affects those who can least afford it. The government and regulators have promised action, but today's update shows that progress has been slow and inconsistent.

“Ofcom and the FCA have begun to make some progress, but both must make sure all providers stamp out the loyalty penalty.

“The six-month extension granted by the CMA gives regulators extra time to tackle this practice. But, if real change isn’t achieved in the coming months, we’ll be looking to government to take strong action where regulators have not or cannot.”

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