The loyalty penalty

And it all happens under the watch of a regulatory infrastructure that is meant (or so I am told) to protect the interests of consumers. Utter baloney. It is bloated, reactive and out of touch.

Of course, the Woodford Equity Income fund debacle represents the latest financial scandal to dent consumer trust – one that increasingly looks as if it is going to end in tears for all concerned, apart from Neil Woodford, who is made for life and the one beyond, irrespective of the outcome: horses, mansions, holiday homes and Ferraris.

And you could add on top the related Hargreaves Lansdown ‘scandal’ that has diminished investor confidence in the true motives of those that run fund platforms (profits über alles). A crying shame given the financial liberation these online platforms have offered investors.

I have been writing about financial companies profiteering on the back of customer inertia for years.

So, should someone force Mr Woodford to waive his fees on his suspended Equity Income fund? Yes (I have been banging this particular drum since day one of the scandal). As of July 4, there has been no intervention from the Financial Conduct Authority.

Should we require platform providers to remove all exit fees? A resounding yes.

So, what does the FCA do? It sits on its inert hands as if it does not have a care in the world.

Yet there is another scandal that has long nibbled away at consumer trust, but no one (including the FCA) seems to want to tackle it – and that is the loyalty penalty.

This is the way in which a swath of the financial services industry continue to abuse the trust of long-standing customers by providing them with inferior terms (be it lower savings rates, higher mortgage rates or more expensive insurance premiums) to those available to so-called ‘newbies’ – new customers.

It is an outrage that no-one with the powers to intervene really seems to want to address, even though the detriment to customers and the financial services industry’s reputation is enormous.

I have been writing about financial companies profiteering on the back of customer inertia for years. It has often been a lonely battle, which no-one, apart from the victims – and the occasional representative from the Financial Services Consumer Panel – has been interested in.

That was until late last year when suddenly the good people from Citizens Advice decided to intervene.

They fired off a red hot super-complaint to the Competition and Markets Authority claiming that consumers were being penalised for their loyalty to the tune of £4.1bn a year. It demanded an immediate end to the loyalty penalty.

Although the complaint caused ripples at the time – as well as plenty of newspaper headlines – precious little has really changed.

Last week, the government said it would soon give regulators (primarily the sleepy FCA and the slightly more alert Ofcom) the right to fine those found guilty of overcharging loyal customers.

Yet it could be a while before anything happens on this front. Why? Well, first, this government seems about as unstable as a dining room table at my local pub, so it is highly likely that any intended legislation will ever see the light of day.

Second, even when empowered with its new fining rights, I can hardly see the FCA acting promptly. After all, alertness is not something it is renowned for; it is as docile as the 16-year-old cat (Pumpkin) that I recently befriended.

Admittedly, Ofcom has progressed matters a little. From the start of this month, a new ‘text-to-switch’ regime has been introduced.

This means millions of people fed up with their current mobile phone deal will be able to dump their provider by text and take up with a new network the next day. Good on Ofcom.

Yet on the FCA front we have heard nothing, not even the occasional stifled yawn. Embarrassing, especially when the FSCP has just recommended that the regulator should introduce rules requiring long-standing customers to be automatically upgraded to better deals if they are falling foul of the loyalty penalty.

The FCA’s response to the FSCP’s recommendation? Silence. It reminds me of The Tremeloes’ 1964 hit “Silence is Golden”.

The splendid Gillian Guy, chief executive of Citizens Advice, recently wrote an opinion article on the loyalty penalty for The Mail on Sunday.

In it she expressed her “disappointment” at the lack of progress in tackling the issue.

“Time is ticking,” she opined. “The FCA and Ofcom need to step up and show us how they are going to stop companies exploiting their loyal customers and put an end to this systematic scam.”

So far, Ofcom has stepped up to the mark with ‘text-to-switch’. The FCA has not. It is time for those officials who reside at the regulator’s plush headquarters in Stratford to show some endeavour and bring the loyalty penalty scandal to an abrupt end, in the best interests of consumers and for the reputation of the financial services industry.

Jeff Prestridge is personal finance editor of The Mail on Sunday