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One-in-seven customers still paying the loyalty penalty despite cost-of-living crisis

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One-in-seven customers still paying the loyalty penalty despite cost-of-living crisis

Friday 05 August 2022

  • Citizens Advice says ‘no more excuses, no more delays’ after regulators found £1.3bn a year loyalty penalty for broadband, mobile and mortgages

  • Tackling the loyalty penalty could be worth over twice as much as October’s £400 energy grant or more than half the energy price cap

One-in-seven customers are still paying the loyalty penalty across the broadband, mobile and mortgages markets in the midst of a cost-of-living crisis, Citizens Advice has uncovered.

The charity found two fifths of people (41%) who are paying the loyalty penalty have struggled to sleep due to their finances. Three in 10 (28%) have already cut back on everyday essentials such as food and energy, and 65% are worried about keeping up with their bills.

Analysis of 165,000 budgets of people who came to Citizens Advice for debt help, found those with the lowest incomes spend almost double the proportion of their income on telecoms than the highest earners.

Now, Citizens Advice is calling on the regulators to finally tackle the loyalty penalty across the broadband, mobile and mortgages markets. It says no-one should be punished for being loyal in the midst of a cost-of-living crisis.

‘I’ve turned off my gas, I buy yellow-sticker food – but I’ve paid a £3,000 loyalty penalty’

Tracy, who is originally from the US, signed up to a £30-a-month package which included TV, landline, broadband and international calls in 2006. She relies on disability benefits.

In January this year she began working through her bills to see where she could save and was shocked to see her bill had increased to £80 over the years. She has now switched providers.

She said: “Everything is going up; gas, electric, food and I have a mortgage to pay. I shop late in the evenings to get yellow-sticker discounted food, I turned off my gas as I can’t afford to repair the boiler or use the heating and I don’t go anywhere other than my hospital appointments.

“When I asked my broadband provider why I wasn’t told about the increases, they said I should have checked my payments and contacted them to see if there was a cheaper deal.

“I need to be able to speak with my family as I can not afford to visit them, but new customers pay £50 less than me for the same deal.  I have paid nearly £3,000 more for being a loyal customer. How on earth can they justify me paying so much more – especially as I was with them for 16 years.”

The loyalty penalty: Four years since the Super Complaint 

In September 2018, Citizens Advice submitted a super complaint on the loyalty penalty, in 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.

In January this year, the Financial Conduct Authority (FCA) essentially abolished the loyalty penalty for car and home insurance, by banning price walking – gradual year-on-year price increases – and making companies automatically switch their customers to better deals. It has paused investigating the cash savings market.

But Citizens Advice is concerned that little meaningful action has been taken in the three other markets it previously identified as having a problem. Regulators found annual loyalty penalties of £800 million for mortgage holders, £451 million for broadband customers, and £83 million for mobile customers paying a bundled contract including a handset.

The charity warns consumers are paying a high price for this inaction, in the midst of a cost-of-living crisis:

Market

Loyalty penalty cost per person per year

Action taken since 2018

UK adults paying the loyalty penalty during the cost-of-living crisis

Mortgages

£1,000

⬤ FCA – no action

630,000

Mobile

£83

⬤ Ofcom – some voluntary commitments from firms

1.5 million

Broadband

£61

⬤ Ofcom – some voluntary commitments from firms

7 million

If a customer pays the loyalty penalty across all three markets this could cost £1,144 a year, equivalent to more than half of the current energy price cap. The £95 monthly cost of the loyalty penalty is equivalent to 17 days average energy use.

But of those paying the loyalty penalty, 18% said it’s too difficult or time consuming to switch, and a quarter of a million (3%) didn’t even know they could.

‘Mobiles and broadband are a lifeline and so people don’t rock the boat’

Mike Emmett runs training for advisers at Citizens Advice Cardiff & Vale to help people reduce their outgoings as part of a manageable budget.

He said: “Many people see their mobile and broadband as a lifeline. 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, said:

“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.”