Australia can learn from UK report on “loyalty penalties”

The Queensland Consumers Association says a major UK report on “loyalty penalties” (charging existing customers more than new ones) just released is very relevant to Australian consumers and the nation’s consumer protection and empowerment policies and practices.

Association spokesperson, Ian Jarratt, says “loyalty penalties” are also a major problem for Australian consumers and this UK report should be essential reading for all Australian regulators, politicians and bureaucrats.

The report by the UK’s Competition and Markets Authority (CMA) found that “loyalty penalties” are significant in 5 important UK markets and impact many people, including those who can least afford to pay them.

The CMA looked at 5 markets: cash savings, mortgages, household insurance, mobile phone contracts and broad band.The CMA has made numerous important recommendations for changes to ensure that consumers can get better and fairer outcomes.

It also said “loyalty penalties” are not just problems in the 5 markets investigated. They have the potential to arise in many other markets, such as pay TV, roadside assistance, many other insurance markets, pensions and other subscription services such as online gaming, software and magazines.

In addition the CMA said: 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.

Not enough has been done in the past by the CMA and regulators; there needs to be a change to tackle these problems more effectively. The focus should not only be on giving better support to consumers; but getting tough on harmful business practices and using targeted pricing interventions where needed to protect those who suffer most, particularly those who are vulnerable.

The CMA says that “loyalty penalties” arise in several ways including:

  • when services are paid for through contracts which automatically renew or roll over, often on a higher rate
  • when there is a sharp increase after the introductory price (‘price jump’)
  • when there are successive price rises (‘price walking’)
  • customers on older tariffs sometimes paying higher prices for similar services (‘legacy pricing’)

The CMA says that offering introductory deals is not necessarily harmful but that “loyalty penalties” are of particular concern when:

  • suppliers make it more difficult than it needs to be for customers to exercise choice, and then exploit those who do not switch;
  • the price gap is large, with some paying very high prices, or it affects many people;
  • it particularly harms those who may be vulnerable such as the elderly, those on low incomes, or with physical disabilities or poor mental health;
  • it happens in ‘essential’ markets.

More information is available here