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Loyal consumers, including mortgage borrowers and savers who fail to switch products and providers, are paying a collective loyalty penalty of £4bn a year, according to the Competition and Markets Authority (CMA).
The warning comes following an investigation by the competition watchdog into five markets – cash savings, mortgages, household insurance, mobile phone contracts and broadband –which uncovered "damaging practices by firms, which exploit unsuspecting customers".
These include continual year-on-year stealth price rises; costly exit fees; time-consuming and difficult processes to cancel contracts or switch to new providers; and requiring customers to auto-renew or not giving sufficient warning their contract will be rolled over.
It also found that vulnerable people, including the elderly and those on a low income, may be more at risk of paying the loyalty penalty.
Around one million people are said to be affected in the mortgage market and nearly 12 million in the insurance market.
In the mortgage market, the CMA said it supported the work of regulators to help 'mortgage prisoners' who cannot move off their standard variable rates, but said that there are still one-in-10 longstanding mortgage customers who could switch and make significant savings but do not.
For savers, the CMA said it welcomed the possible introduction of the Basic Savings Rate, but told regulators they should also consider further interventions, such as a targeted absolute price floor in cash savings and collective switching.
Having found evidence of insurers continually raising prices, the CMA said financial regulators "must look closely at these pricing practices" and take action to prevent people from being exploited by firms.
Among the recommendations made to Ofcom, the CMA suggests mobile phone providers must stop charging pay-monthly customers the same rate once they've effectively paid off their handsets at the end of the minimum contract period, and wants more to be done to make people aware of sim-only packages.
"Our work has uncovered a range of problems which leave people feeling ripped off, let down and frustrated," said Andrea Coscelli, CMA chief executive. "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. Millions of loyal or vulnerable customers are being taken advantage of each year by firms – and end up paying much more than they should do. This must come to an end."
While providers can now expect a crackdown on practices that stop people getting better deals, you shouldn't wait for any new rules to take effect.
Check out our Best Buy charts to see if you can get a better savings rate or a cheaper mortgage deal. When it comes to insurance, don't renew until you've checked whether you can protect your car, home and even your life cheaper somewhere else. Broadband and gas and electricity are other areas where big savings can be made if you haven't checked out the competition in a while.
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