Mobile, insurance and broadband firms could soon be fined for overcharging loyal customers in a move that could save consumers up to £4bn a year.
The government will consult on giving the Competition and Markets Authority (CMA) power to punish providers that mislead customers and exploit long-term customers – who often end up paying more than £1,000 more than people who switch providers regularly, according to Citizens Advice research.
Business secretary Greg Clark also said the government would give the same powers to other regulators, like Ofcom and the Financial Conduct Authority (FCA), to protect loyal customers.
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Ministers think the new measures will deter companies from signing consumers up on hard-to-exit contracts with unfair terms and conditions.
It will also give regulators more power to tackle problems like secondary ticketing and unfair terms for car home residents.
The business secretary said: “The key to successful businesses is ensuring that they work for the benefit of consumers and that unfair practices are tackled effectively.
“Consumer loyalty should not be exploited and nor should consumers have to work so hard to get a fair deal. We have already shown our willingness to take action through our energy price cap, which means every household is protected from unjustified price rises.
“We are committed to ensuring consumers are not unfairly targeted and penalised for their loyalty and that they can access quality products and services for a price that is competitive and fair.”
This is just the tip of the iceberg
The government will also consider ending the practice of mobile providers charging customers the same rate once they have paid off their handsets at the end of the minimum contract period.
But according to Citizens Advice, which made a supercomplaint about loyalty penalties to the CMA in September, the government must do more.
Chief executive Gillian Guy said the mobile phone loyalty penalty had cost consumers £341m since then.
“This is just the tip of the iceberg,” Guy said. “While the government’s announcement is welcome, we’re disappointed by the lack of action from regulators.
“The FCA and Ofcom have had six months since the CMA issued its findings on our supercomplaint and there has been little progress. They need to set out their plans urgently on how they will tackle this systematic scam.”
The new powers will be consulted on in the government’s upcoming Consumer White Paper.