Theresa May announced plans to give the competition watchdog tough new powers to fine businesses directly if they have broken the law.
It’s aimed at tackling the ‘loyalty penalty’ where consumers are overcharged despite being long standing customers and comes following a ‘super-complaint’ from Citizens Advice.
The charity was concerned British consumers were losing £4.1 billion a year to the loyalty penalty and that eight in 10 people were paying a significantly higher price for remaining with the existing supplier.
Mortgages were one of the five markets which it named in its super-complaint – along with mobile phones, broadband, home insurance and savings.
New powers
The Government has now confirmed it will consult on giving the Competition and Markets Authority (CMA) new powers which mean it could intervene in cases where the law had been broken without going to court.
It hopes this will prevent firms harming customers with misleading claims, unfair terms and conditions and contracts which are difficult to exit. It said the measures would ensure subscriptions were as easy to exit as they were to enter. Currently these are focused on the mobile, broadband and insurance industries.
How it will impact mortgages
The Government also said it would legislate to give regulators such as Ofcom and the Financial Conduct Authority (FCA) powers to stop loyal customers being taken advantage of.
Currently, the FCA is investigating how it can help so-called mortgage prisoners, who are stuck on expensive mortgages, to move to better deals.
But while today’s announcement has been welcomed, there are now calls for it to extend to supporting mortgage prisoners and others who find it tricky to switch to a better deal.
Online mortgage broker Trussle wants the work to extend help the two million plus people who are trapped in expensive mortgages and losing £25 million across the UK every day.
Ishaan Malhi, CEO and founder of online mortgage broker, Trussle, said: “While the Government consultation is a positive step in the right direction, it’s long overdue.”
He added: “The loyalty penalty is something we’ve seen a lot of in recent years. Yet the lack of action from the industry and the regulator is disappointing.”
Paying more for lenders’ rate
When borrowers come to the end of their mortgage deal without remortgaging they automatically revert into their lender’s standard variable rate (SVR) which is usually subject to higher interest rates.
Trussle thinks the competitions watchdog, the CMA, must be granted intervening rights sooner rather than later to prevent homeowners being trapped in the same costly situation.
Christopher Woolard, executive Director of strategy and competition at the FCA, said: “Before the CMA published its super complaint response last year, we had already begun work in the mortgages, cash savings and general insurance markets.
“Ensuring that markets work well for longstanding and vulnerable consumers continues to be a priority for us and the loyalty penalty is a serious issue. We will continue to work closely with the CMA and other regulators on the recommendations relevant to us.”
