Secretary of State for Business, Energy and Industrial Strategy, Greg Clark MP, has written a letter to the chief executive of the Competition and Markets Authority (CMA), Dr. Andrea Coscelli, about government proposals to take action to prevent harm to customers arising from the ‘loyalty penalty’. In the letter Greg Clark commits to ensuring that both the UK Government and regulators take further action to address business practices resulting in loyalty penalties and states that it is “extremely concerning” that some businesses are employing practices that have an adverse effect on loyal customers. The CMA has analysed that the cumulative size of the loyalty penalty is in the region of £4 billion every year across the markets examined (of which home insurance was one market).
In 2018 the CMA received a ‘super-complaint’ from Citizens Advice in respect of price discrimination against long-term customers. Citizens Advice subsequently sought a response from the CMA including a commitment to initiating a study to identify possible remedies to end overpricing for disengaged or loyal customers. The home insurance market was included amongst the markets that Citizens Advice identified as penalising existing customers. Harmful business practices, such as loyalty penalties, were identified in the Government green paper on Modernising Consumer Markets in 2018 (a white paper is forthcoming). In particular, the green paper identified that increasing uses of data and technology are changing how firms can harness consumer preferences. In his letter Greg Clark says that he supports the CMA’s view that greater emphasis must be placed on what suppliers are doing than has been the case historically.
Greg Clark says that he agrees with the CMA that enforcement action against harmful practices such as loyalty penalties needs to increase and recognises the role that targeted pricing interventions can play in addressing concerns. Should regulators and the CMA find that existing powers cannot improve consumer outcomes then the Government will consider further legal or regulatory changes to ensure that various regulatory bodies have the powers they need to impose fines on companies for breaches of consumer law. The government wishes to empower the CMA to impose fines directly, without recourse to the courts, for breaches of consumer law. The letter also highlights the need to set consumer priorities across sectors and encourage collaboration where problems are identified. One such plan proposed is the development of performance scorecards that provide a set of comparable data on consumer outcomes for each company, including the loyalty penalty. Such scorecards are to be developed through Ofgem, Ofwat and the FCA.
The letter concludes with the following statement from Greg Clark:
“It is my intention to put the consumer at the heart of retail markets in the regulated sectors and to ensure that no consumer loses out or can be exploited by companies taking advantage of their loyalty.”