Citizens Advice calls on Ofcom to tackle ‘loyalty penalty’ in telecoms

Bill Contract Tear

‘No-one should be punished for being loyal in the midst of a cost-of-living crisis’ says consumer watchdog/charity Citizens Advice, claiming one in seven UK customers are paying a ‘loyalty penalty’.

The statement from Citizens Advice doesn’t do a great job of defining exactly what a loyalty penalty is, but the concept alludes to a situation in which customers sign up to a certain deal for services and keep with it over the years, and in the intervening period better or cheaper deals emerge meaning the ‘loyal’ customer is paying more than new customers who pick up the better deals.

The group says regulators have found that this situation accounts for £1.3 billion a year in loyalty penalties in the UK for broadband, mobile and mortgage deals. The charity also found that 41% of people who are paying the loyalty penalty have struggled to sleep due to their finances, 28% have already cut back on everyday essentials such as food and energy, and 65% are worried about keeping up with their bills.

Citizens Advice submitted a serious sounding ‘super complaint’ in September 2018 regarding all of this, specifically as it relates to the mobile, broadband, home insurance, mortgages and savings markets. By 2020, the sectors’ regulators had found a combined loyalty penalty of £3.4 billion every year, apparently. According to CA, The Financial Conduct Authority subsequently dealt with the issue in the car and home insurance, by banning ‘price walking’ – or year-on-year price increases – and insisting providers automatically switch their customers to better deals. Citizens Advice seems to essentially be calling for the same sort of thing to happen in telecoms.

“Many people see their mobile and broadband as a lifeline,” said Mike Emmett who runs training for advisers at Citizens Advice Cardiff and Vale. “They need them to speak to people and do things like manage their Universal Credit account, and help their kids with their homework. But they’re usually reluctant to switch for fear of rocking the boat, particularly because of the prospect of credit checks.

“We also find people who are digitally excluded or who have mental health problems often prefer to speak to someone about switching, but they can wait for hours on the phone and end up giving up. It’s so frustrating when we see people who are on the lowest incomes paying the loyalty penalty, as they’re forced to jump through so many hoops to try and sort it.”

Dame Clare Moriarty, Chief Executive of Citizens Advice added: “The government did the right thing by strengthening its cost-of-living help, but finally fixing the loyalty penalty could put more than twice as much money back in some people’s pockets as the £400 October energy grant. As we all pull together to weather the cost-of-living crisis, it’s incredibly frustrating to see there are still firms out there that prefer to help themselves than help the people who’re most in need. The time for piecemeal pledges has passed. Regulators must tackle the loyalty penalty across these three markets – no more excuses, no more delays.”

Based on analysis of 165,000 budgets of people who came to Citizens Advice for debt help, the group found those with the lowest incomes spend almost double the proportion of it on telecoms than the highest earners – which of course isn’t ideal.

The spirit of helping the most cash strapped households not pay more than they need to in a time where budgets are being crunched is, of course, easy to get behind. The only fly in the ointment might be that mobile or broadband contracts differ quite a lot compared to something like home insurance. There are myriad factors that would effect how much you might pay for using a mobile or getting internet at home and it probably isn’t as simple to equate to new deals as it would be for car insurance rates. But that doesn’t mean it can’t be done.


Get the latest news straight to your inbox. Register for the newsletter here.


Leave a comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.