The Competition and Markets Authority has criticised insurers over “stealth price rises” and costly exit fees for loyal customers.
The watchdog looked into areas including cash savings, mortgages and home insurance after charity Citizens Advice raised a so-called “super complaint” over how longstanding customers are treated by financial services organisations.
The CMA has recognised that a “step-change” is needed to make sure consumers can more easily switch providers and avoid unwittingly paying more and more for the same services by having contracts roll over automatically.
The watchdog says: “We have found that the loyalty penalty is significant and impacts many people, including those who can least afford it. Customers rightly feel ripped off, let down and frustrated. They should not have to be constantly ‘on guard’ or spend hours negotiating to get a good deal. This erodes people’s trust in markets and the system as a whole.”
While it was not in the original complaint to be investigated, the CMA said the issue of loyalty penalties was also likely to apply to other areas like pensions too.
To being tackling the issue, the CMA says it will make “bolder use of existing enforcement and regulatory powers to tackle harmful business practices”.
It is also considering intervention on pricing, as well as moves to publish the size of the loyalty penalty in different markets.