Cap prices to protect vulnerable phone and internet customers from being ripped off, watchdog suggests

'Regulators must do whatever it takes to fix the loyalty penalty,' says Citizens Advice

Just more than a quarter of India’s population has access to the internet (Shutterstock)

Price caps should be considered as part of radical reforms designed to protect millions of mortgage, insurance, internet and mobile phone customers currently being “exploited” and ripped off to the tune of £4bn, the competition watchdog has said.

The Competition and Markets Authority (CMA) said in some cases “targeted price caps” or “price interventions” should form part of measures to protect the worst-hit customers from harmful business practices including stealth price increases and convoluted contract cancellations, following its investigation into a “super-complaint” over industry tactics by Citizens Advice.

It has recommended a slew of reforms after probing concerns that companies are penalising at least 13 million existing customers by charging them higher prices than new customers. Researchers found that vulnerable people, including the elderly and those on low incomes, may be at greater risk of paying the so-called loyalty penalty.

They also uncovered a string of “damaging practices” by companies that included continual year-on-year stealth price rises; time-consuming and difficult processes to cancel contracts or switch providers; expensive exit fees; and requiring customers to auto-renew or not giving them sufficient warning their contract would be rolled over.

The CMA has recommended government and regulators crack down on harmful practices using enforcement powers, stating clearly the principles businesses should follow and holding firms publicly to account for their actions.

Price controls could be part of the response, it suggested, recommending that government “consider targeted pricing regulations such as limiting price differentials or price caps, alongside other measures where there is clear harm, particularly to protect vulnerable consumers”.

The CMA recommended Ofcom puts regulation in place to stop mobile providers charging pay-monthly customers the same rate once they have effectively paid off their handsets at the end of the minimum contract period. ”Ofcom should continue its work to challenge this practice and bring it to an end,” bosses said.

The Financial Conduct Authority, meanwhile, should “look closely” at evidence insurance firms continually raise prices and take action to prevent people being exploited, investigators said. This should include considering “pricing interventions”.

Andrea Coscelli, chief executive of the CMA, said: “Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated. They shouldn’t have to be constantly ‘on guard’, spending hours searching for or negotiating a good deal, to avoid being trapped into bad value contracts or falling victim to stealth price rises.”

The CMA found that millions of people had been affected, from about 1 million in the mortgage market to nearly 12 million in insurance.

Gillian Guy, chief executive of Citizens Advice, said: “This is a strong response from the CMA, recognising that loyal customers are getting ripped off. That is exactly why we’ve been fighting to stop the loyalty penalty, and why we made the super complaint.

“While the CMA needs to hold regulators to account, the onus is now on Ofcom and the FCA to act. The CMA has set a six-month deadline for progress and expectations are high. Regulators must do whatever it takes to fix the loyalty penalty.”

Additional reporting by PA