Loyalty penalty to be investigated by the CMA

household admin

Congratulations to the Citizens Advice Bureau who have launched a ‘super complaint’ with the Competition and Markets Authority (CMA). The charity found that across specific categories (mobile phones, broadband, home insurance, savings and mortgages), an estimated £4.1bn is being overspent due to this ‘loyalty penalty’. The charity said 80% of people pay a higher price to at least one of these supplier categories for being loyal.

Here at Bills Dashboard we have long known about the loyalty penalty. That is why we set up Bills Dashboard. Rather than being rewarded for being loyal to a supplier, as is normal in other markets, in some sectors of household bills, there is a penalty for being loyal. The cost of this loyalty? An average of £877 per year.

In a blog post earlier this year, I wrote about the renewal of my car insurance. My premium for 2017-18 was £305. I received a renewal letter from my insurers (Hastings Direct) with an automatic renewal of £399. On top of this, the letter stated “to make it easier, we will take this amount in a single payment from the card you used previously..“.

It is letters like this, and the brazen effrontery to think that a company can automatically charge £100 more this year compared to last year (the important word here is ‘automatically) and worse still, take £400 from my account without considering that I might like to pay by direct debit. This practice is way overdue a change. I agree that these companies should charge for their services and make a profit. However, the automatic renewal increase defies logic. The only way to describe it is fraud. The supplier is relying on customer apathy to  not switch. There must be algorithms that set the renewal amount at just the right amount to avoid too much switching. Too high a renewal amount and no renewals would occur.

Moreover, what about those that are way too busy to look at these things? What about those that are really struggling to manage their finances as they don’t have a computer or have to do everything by telephone? How do they look at a comparison site? How does a 80 year old couple who don’t understand the intricacies of switching avoid the automatic renewals and increase in payments? The Citizens Advice Bureau highlighted the case of a 90 year old couple who were paying £1,000 a year too much for their home insurance. That is about £80 a month too much.

In the words of the Citizen’s Advice Bureau:

This is, in effect, a systematic scam: nobody would choose to pay such higher prices – companies charge these prices solely in the hope that people won’t notice.

The automatic renewal (and automatic charging) must stop. In the meantime, sign-up for Bills Dashboard and get control of your finances.

Share it!