New powers to fine firms exploiting customer loyalty
Big companies have been getting away with harmful practices which lead to poor services and confusion among customers, the Prime Minister says.
Firms overcharging or misleading customers are being warned they could be hit with direct fines without the need to go through a court.
The Government announced it will consult on giving the Competition and Markets Authority (CMA) new powers to decide itself whether consumer law has been broken.
Ministers said new powers would enable the CMA to intervene earlier and enable fines to be imposed directly on firms for poor business behaviour.
The Government said the aim is to deter firms harming consumers with misleading claims, unfair terms and conditions and hard-to-exit contracts.
The measures will also ensure subscriptions are as easy to exit as they are to enter and help the CMA tackle bad practices in other consumer markets like secondary ticketing and unfair terms for care home residents.
The Government also announced that it will legislate to give regulators, such as Ofcom and the Financial Conduct Authority, new powers to stop loyal customers being taken advantage of if their existing powers are insufficient.
Prime Minister Theresa May said: “For far too long, many big companies have been getting away with harmful trading practices which lead to poor services and confusion among customers who have parted with their hard-earned cash.
“The system as it stands not only lets consumers down but it also lets down the vast majority of businesses who play by the rules.
“It is high time this came to an end and today we are confirming our intention to give much stronger powers to the CMA, to strengthen the sanctions available and to give customers the protection they deserve against firms who want to rip them off.”
Business Secretary Greg Clark said: “The key to successful markets and businesses is ensuring that they work for the benefit of consumers and that unfair practices are tackled effectively, as the majority do.
“I strongly believe that 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.
“A core part of how we do this is by making sure all consumers, including the vulnerable, can benefit from the emergence of smart data and technology to access better deals from innovative digital services.”
The new powers will be consulted on in the government’s upcoming Consumer White Paper.
Other proposed measures include legislating, if necessary, to ensure mobile providers end the practice of charging customers the same rate once they have paid off their handsets at the end of the minimum contract period.
According to Citizens Advice research, customers who stayed loyal to their mobile and broadband providers, or to those providing financial services like savings, mortgages and insurance, were paying as much as £1,000 a year more than serial switchers.
Andrea Coscelli, Chief Executive of the CMA, said: “Our investigation revealed that loyal customers are being trapped in poor-value contracts or paying more than they should. This has to stop – that’s why we set out significant recommendations to tackle poor practice.
“But the CMA also needs stronger powers to act against companies who break consumer law, including the power to impose fines to deter such wrongdoing.
“We’ve been calling for legislation so we can act rapidly on behalf of people who are being ripped off. The response from the Government is a very welcome step – it is absolutely important that we are able to intervene and penalise businesses when we find they are in the wrong.”
Caroline Normand, Which? director of advocacy, said: “Action to impose fines on firms that harm consumers through excessive charges, misleading offers and confusing practice can’t come soon enough and should act not only as a deterrent, but as an incentive to give consumers a fair deal.
“We also welcome much-needed new powers for the CMA and other regulators to finally clamp down on the ongoing bad practice of excessive, so-called loyalty penalties, which cost consumers billions of pounds a year.”
Sharon White, Ofcom chief executive, said: “Our analysis of broadband and mobile markets reveals a complex mix of prices and confusion among customers.
“We’re tackling this through a range of measures, such as forcing firms to tell customers when their contract is up. New powers could allow regulators to go even further.”
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