Ofcom needs to address broadband and mobile loyalty penalties, Citizens Advice

No one should be penalised for being loyal amidst a cost-of-living crisis, it says

Citizens Advice, the organisation that provides independent legal advice, is urging Ofcom to address the issue of so-called loyalty penalties after finding that one in seven customers are still paying higher rates for mobile, broadband and mortgages.

A loyalty penalty, according to Citizens Advice, is the price difference between what long-term customers and new customers pay for the same service.

Many customers sign up for a particular service and stick with it over the years; however, in the meantime, better or cheaper deals arise, which means that the "loyal" customers pay more than new customers who take up the better deals.

After conducting a survey that looked at the broadband, mobile, and mortgage markets, Citizens Advice found that 41% customers who are paying the loyalty penalty have had trouble sleeping as a result of their financial situation.

Three out of ten people (28%) have already reduced their consumption of daily necessities like food and electricity, while 65% are concerned about being able to pay their bills.

The analysis of 165,000 budgets of individuals who sought debt help from Citizens Advice revealed that those with the lowest incomes spend nearly twice as much on telecommunications services as those with the highest incomes.

Citizens Advice mentioned the case of a woman called Tracey who depends on disability assistance. She signed up for a £30 monthly package in 2006 that included TV, a landline, broadband and international calls.

When she finally looked at her bills this year in an effort to save money, she discovered that it had increased to £80 a month.

"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," Tracey said.

"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?"

Citizens Advice is now requesting regulators to address the loyalty penalty in the broadband, mobile, and mortgage industries, arguing that no one should be penalised for being loyal amidst a cost-of-living crisis.

The group says it filed a formal complaint over loyalty penalty in the broadband, mobile, home insurance, mortgages and savings markets in September 2018.

By 2020, the concerned regulators discovered a combined loyalty penalty equalling £3.4 billion per year.

The Financial Conduct Authority (FCA) essentially eliminated the loyalty penalty for home insurance and car policies in January of this year by prohibiting gradual increase of premiums every year, and mandating that insurance providers automatically switch their customers to better deals.

However, Citizens Advice said little progress has been made in the three other areas that it previously identified as having a problem.

"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," said Dame Clare Moriarty, chief executive of Citizens Advice.

"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."