The Financial Services Consumer Panel (FSCP) has recently published recommendations for protecting consumers from poorly performing financial services products. Long-term customers might be paying more for goods and services, which the Panel called ‘the loyalty penalty’.
Using research data from the Financial Conduct Authority’s ‘Financial Lives’, Europe Economics identified eight products that the average consumer holds: current accounts, cash ISAs, credit cards, mortgages, investment products, pensions, home insurance and income protection. It found that some consumers are paying loyalty penalties of up to 5% of their annual income, and even as high as 10%.
Customers stay with poorly performing products because they’re too busy to search for and switch to better products, they’re trapped by their existing provider, have behavioural biases, or simply don’t realise that better alternatives exist.
Wanda Goldwag, the chair of the Consumer Panel, said the research demonstrates ‘the need to ensure that all consumers are treated fairly… Consumers should not be penalised for this loyalty.’
Losing the loyalty penalty
The Consumer Panel, which advises the Financial Conduct Authority on the interests and concerns of consumers, asked the FCA to consider introducing a new automatic-upgrade rule. This would require the firm to either automatically upgrade its customers to its best available product or conversely offer them a choice of better quality and better value products within the firm’s portfolio that suit their needs. Goldwag suggested that an automatic-upgrade rule would level the playing field.
While such a move could improve outcomes for some consumers, many will find themselves holding products that are the best of a bad bunch. To level the playing field, consumers should be informed that other providers may have better products and be encouraged to research them.