CMA publishes update on loyalty penalty progress

Following the Citizens Advice super-complaint to the CMA about the loyalty penalty (when companies charge longstanding customers more than new customers or those who renegotiate their deal), the CMA identified a significant loyalty penalty affecting millions of customers across five key markets: mobile, broadband, household insurance, cash savings and mortgages. In its Response to the complaint, the CMA made specific recommendations to regulators in an attempt to tackle the loyalty penalty.

12 months on from those recommendations, the CMA has published an update setting out the progress that has been made so far.  On Financial Services, the CMA has noted that the FCA has been undertaking further work in insurance, cash savings and mortgages:


  • In its Response, the CMA welcomed the FCA’s GI market study and recommended it should consider (1) targeted pricing interventions and restrictions that limit price walking and (2) how intermediaries can continue to benefit the home insurance market.
  • The FCA’s interim report (October 2019) found that insurers often sell policies at a discount to new customers yet they increase premiums when customers renew, such increases being targeted particularly at those less likely to switch. Overall 6 million policy holders paid high prices in 2018 and the FCA estimated they could have saved c.£1.2 billion.
  • The interim report set out a range of possible remedies which take into account the CMA’s principles for healthy competition and acceptable behaviour by firms. The FCA is considering remedies including banning or restricting practices such as raising prices for consumers who renew year-on-year, or requiring firms to automatically move consumers to equivalent cheaper deals. The FCA has also suggested the possibility of requiring insurers to publish information about price differentials between customers and is considering a future strategy on Open Finance.
  • The CMA welcomes this range of remedies and looks forward to seeing the finalised list.

 Cash savings

  • In its Response, the CMA welcomed the FCA’s work in introducing a Basic Savings Rate (BSR).
  • The FCA has now published a consultation which outlines proposals for (1) a Single Easy Access Rate (SEAR), which replaces the previously proposed BSR and (2) a requirement on firms to publish data on their SEARs.
  • The CMA welcomes the move towards the introduction of a SEAR, particularly in respect of the proposal to specify a common format for the publication of data on SEARs. The CMA is also pleased that a clear timetable has been outlined to (1) publish next steps; (2) implement any new rules to take effect in April 2021; and (3) carry out an ex-post evaluation of the interventions three years after their introduction.
  • As part of any ex-post evaluation, the CMA expects the FCA to have regard to the CMA’s previous recommendations:
    • if the FCA implements a SEAR, evaluate whether it has had the intended impact and if not, consider further pricing interventions such as a targeted absolute price floor in cash savings; and
    • consider whether collective switching could be applied in this market.


  • In its Response, the CMA welcomed the FCA’s market study to help ‘mortgage prisoners’ move to better deals where possible. The CMA recommended that the FCA should consider how it can help or protect the 10% of longstanding customers who could switch and make significant savings but who do not.
  • The CMA comments that the FCA’s research into these customers to understand why they are not switching is complete and the FCA is now considering the case for possible remedies.
  • The CMA encourages the FCA to outline a timetable for this work and for introducing remedies to help these customers if needed.

The CMA has also been working to enforce consumer protection law in an attempt to tackle harmful business practices that make it more difficult for customers to avoid a loyalty penalty. It has launched enforcement cases in two sectors: anti-virus software and online console video gaming and is examining whether some of these business practices, and the terms and conditions of the businesses involved, are fair in relation to auto-renewal, cancellations and refunds. The CMA intends to publish a further update on these cases in Q1 2020.

The CMA has confirmed it will continue to work with the new government to develop reforms proposed by the previous government. Potential reforms include giving the CMA new powers to fine businesses which have broken consumer law directly (i.e. without needing to go to court) and giving regulators, including the FCA, new powers to stop longstanding customers being taken advantage of (if their existing powers are insufficient). The CMA has also proposed wide-ranging reforms to improve its consumer enforcement and investigation powers so that it can take action against firms more effectively.

On loyalty penalty metrics, the CMA recommended in its Response that regulators should publish the size of the loyalty penalty in key markets and for each supplier. The CMA notes that, whilst the FCA has not yet published data, it is considering options to do so. In relation to cash savings, the CMA considers that the proposed “sunlight” remedy would provide adequate information on price differentials. In insurance, the FCA’s Market Study is considering requiring firms to publish information on rate differentials. For mortgages, there is currently no publicly available information on rate differentials at the supplier level and therefore the CMA urges the FCA to publish relevant data as soon as possible.

In terms of next steps, the CMA intends to publish a further update on progress to tackle the loyalty penalty in July 2020.

Lucy Hadrill