The Financial Services Consumer Panel has called on the financial regulator to consider introducing an "automatic upgrade" rule for consumers trapped in poorly performing financial products, including mortgages, pensions and income protection.
According to the panel, the rule would require a company to automatically upgrade its customers into its best available product or offer them a choice of "better quality and better value products within the firm’s portfolio".
The call was made alongside research published by the panel today (June 25) which showed the cost of remaining in a poorly performing product could mean some consumers incur a loyalty penalty in excess of 5 per cent of their annual income.
The panel warned is was "not impossible to imagine" that for some consumers these costs can be as high as 10 per cent of annual income.
The research followed the recent super-complaint raised by Citizens Advice, which highlighted concerns about long term customers paying more for goods and services - identified as a "loyalty penalty".
Last week the Competitions and Market Authority confirmed the loyalty penalty continued to be an "issue of great concern" and urged the FCA to take "strong action" against firms levying the so-called penalty.
Today the FSCP also recommended the regulator use its "increased data access and capability" to calculate the overall detriment to consumers caused by failing to auto-upgrade across all product areas.
The panel said the FCA should use this as a key indicator of "where it should prioritise its resource".
Wanda Goldwag, the newly-appointed chairwoman of the consumer panel, said an automatic-upgrade rule would create a "level playing field".
She said: "The research demonstrates the detriment for consumers of remaining in poorly performing products and the need to ensure that all consumers are treated fairly.
"Loyal customers are often those who are too busy to search for and switch to better products, those who do not switch due to behavioural biases, those trapped with their existing provider or those who are not aware that better alternatives exist.
"Consumers should not be penalised for this loyalty."
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