Citizens Advice said its super-complaint against the mortgage industry was prompted by the treatment of vulnerable consumers who end up on standard variable rates (SVRs).
Earlier today (28 September) the charity launched a super-compliant with the Competition and Markets Authority (CMA) to call for the "loyalty penalty" paid by consumers in the mortgage market to be remedied.
Citizen Advice had found 1.2m borrowers pay a mortgage loyalty penalty of £439 a year based on customers left on their lender’s SVR and called for the Financial Conduct Authority (FCA) to do more to protect vulnerable clients.
Morgan Wild, senior policy researcher at Citizens Advice, said the charity had found particular problems with vulnerable clients - in particular those suffering from mental health issues and lower income households - and switching from a standard variable rate.
He said: "We want to see more action from the FCA to stop people being stung for their loyalty - particularly those who are potentially vulnerable - although it is a good start that the FCA are taking this seriously, including by looking into requiring providers to contact loyal customers to alert them to better deals."
Mr Wild said Citizens Advice wanted to see active responsibility put on providers to make sure those on low income and vulnerable borrowers are provided with the best rate.
He highlighted that lenders are increasingly using online services to offer new rates, meaning those borrowers lacking digital skills were being left without the ability to switch.
He said: "The online service is working very well for those borrowers who are engages and proactive, but for those who may struggle in this area they are being left behind.
"Lenders should be proactively making sure these customers are on the best deal available to them."
A Citizens Advice spokesperson said the research and super-complaint did not account for those borrowers considered to be "mortgage prisoners" in the market.
In its response to the FCA’s mortgage market study published in May, Citizens Advice suggested the regulator look into whether limiting the difference between best and worst deals offered by lenders in the market would help solve the loyalty penalty problem.
Ishaan Malhi, chief executive and founder of Trussle, said: "Consumers are being penalised to the tune of thousands of pounds every year for staying loyal to their providers. We know that two million homeowners are currently sitting on an SVR, collectively overpaying billions of pounds annually in extra interest charges – and that’s just for mortgages.
"The loyalty penalty is something we’ve heard a lot about in recent years, but we’re yet to see any real progress made and it’s clear the industry needs to step up and do more to stop consumers being exploited. We welcome Citizens Advice’s super complaint and look forward to hearing the CMA’s decision."
Responding to the super complaint this morning, the FCA said the regulator intended to work closely with the CMA to investigate the complaint.