Citizens Advice explores 'vast rip-off' of vulnerable and disengaged consumers


    On September 27, Citizens Advice (CA) raised a super-complaint with the Competition and Markets Authority (CMA) about long-term customers overpaying for key services in five ‘essential markets’, including mortgages, household insurance, mobile, broadband and savings accounts.

    Whilst all individuals have the right to complain, designated consumer organisations can make a super-complaint on behalf of thousands, or potentially millions of people. A super-complaint requires regulators to investigate the markets or market practices that the consumer organisation thinks are significantly harming the interests of consumers. 

    This complaint calls on the CMA to tackle the ‘loyalty penalty’ in essential markets to “protect people from being ripped off”.

    CA estimates that people who are loyal to their service providers are losing out on more than £4bn a year, when compared to the deals available to new customers, or customers who switch providers. Within its complaint the consumer group claimed “It is, in effect, a systematic scam”, adding that nobody would choose to pay these extortionate sums and that companies charge these prices solely in the hope that people won’t notice.

    Citizens Advice doesn’t use its power to make a super-complaint frequently. The last time it raised one was seven years ago, regarding the mis-selling of Payment Protection Insurance (PPI) – which has since led to £32.2bn being returned to customers in refunds and compensation.

    Savings accounts headlines
    The headline observations from the super-complaint relating to savings account are:

    • 80% of easy access accounts have not switched in the last 3 years (FCA Jan 2015)
    • 37% of people with a savings account likely to be paying a loyalty penalty, with an estimated average loss of £48.26 in interest for people holding cash ISAs
    • The total loyalty penalty attributed to savings accounts was £1.136bn a year
    • People aged 65 or over are more likely to have done no shopping around before entering into a contract than those aged 18-64, across broadband, mortgages, mobile contracts, home insurance and savings accounts. Over 8 in 10 (87%) of over 65s pay the loyalty penalty in at least one market in comparison to 72% of those aged 18-34.
    As part of its complaint, CA has drawn on the Financial Conduct Authority’s cash savings market study, which found that large current account providers have a considerable market advantage, because they could attract the most easy access balances despite offering lower interest rates. As a result, while there are over 100 providers, more than two-thirds of the market is controlled by just six savings providers. 

    The super-complaint will require the CMA to complete a thorough investigation into the ‘loyalty penalty’ in all five essential markets, including savings accounts, and take appropriate action following the result. 

    The next stage is for the CMA to publish a response within 90 days and the possible outcomes of its investigation competition or consumer enforcement action or launching a further market investigation or market study.

    Castle Trust has long been an advocate of encouraging customers to shop round for the best deal – savings rates, for example, can vary widely even in a low-interest environment such as the one we have been in for the last ten years.  Our blogs Big banks pay the best interest rates – right? Wrong! and FCA says savers missing out on £480m in interest have more information on this subject.

    More information about the super-complaint can be found here:
    Citizens Advice announcement
    CMA Press Release
    Citizens Advice complaint

    Jeremy Stevens
    Investment Marketing Team

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