CMA moots price caps to tackle £4bn 'loyalty penalty'. Good

Did someone spike the punch at the Competition and Markets Authority Christmas Party with speed? There’s been an unseasonal blizzard of big announcements from the watchdog over the last couple of weeks, mostly welcome ones.

The latest is a case in point. It comes in the wake of a “super complaint” filed by Citizens Advice about the “loyalty penalty” imposed upon consumers who stick with the providers of various important, and sometimes essential, services rather than shopping around. It turns out the latter isn’t always easy to do.

The watchdog considered five markets: cash savings, mortgages, household insurance, mobile phones and broadband. It found that consumers are getting soaked by £4bn annually.

Its report paints a highly unflattering picture of the way the businesses operating in these sectors go about doing this. Costly exit fees, processes designed to make switching time consuming and difficult, auto renewal of contracts with stealth price rises imposed at the same time.

This isn’t business. It’s hucksterism.

But what to do about it? Work is already underway in some of the business areas covered by the regulators overseeing those sectors (the Financial Conduct Authority and Ofcom).

The CMA is urging a crackdown on them, up to and including the possible imposition of targeted price caps to help vulnerable consumers.

These are anathema to economists, who tend to fret about the potential unforeseen consequences of interfering with markets in this way, and like to talk about the road to hell being paved with good intentions.

But where they have recently been trialled they have proven to be quite successful.

Perhaps the best example can be seen in the Financial Conduct Authority’s cap on payday lenders, which has served to halt what appeared to be a runaway train, putting some disreputable companies out of business in the process.

Prior to its imposition, there were claims that it would leave people at the mercy of loan sharks. These have proved groundless. Payday loans are still available. They’re just a lot cheaper, and less likely to trap vulnerable people under a mountain of debt. Overdraft charges are next on the FCA’s menu, where there ought to be a similarly beneficial result.

It’s entirely possible that the mere threat of extending capping regimes to the markets considered by the CMA, in addition to the possibility of disciplinary action, will be enough to force some hard thinking upon the businesses operating in them. It is to be hoped that it does.

As ever, it’s the most vulnerable consumers (the elderly, those on low incomes) who get hit the hardest by the short of sharp practice that the CMA has found. The latter group, in particular, hasn’t had a lot to celebrate this year. Caps have the potential to put extra money into the pockets of the people in it. This action could, in that case, serve as the silver lining to a darkly cloudy year.

As for the speed in the punch? The CMA is proposing further work, such as an investigation into the way the market for anti virus software works. There may be a loyalty penalty at work there too. So it’s clearly potent stuff. But necessary.