Helping Consumers Get a Better Deal

29 Jun 2016

The government is looking for ways to ensure consumers are active, assertive and understand their rights in order to make good consumption and financial choices.

The Department for Business Innovation and Skills concluded a call for evidence on how to empower consumers to make wise decisions when purchasing goods and quicker switching on 23 June. This call follows from a 2011 consultation that found the organisations responsible for empowering and protecting consumers, including the provision of advice and advocacy, inefficient, confusing and unable to service those in need of advice in an emergency. The Queen’s Speech in May also suggested that the government has committed to implementing pro consumer and competition legislation.

Consumer rights and information are a big issue for the economy. Consumers who are more informed of their rights and face less barriers to exercising their choice or changing providers will be more able to switch to lower cost providers and so drive more competition and higher quality services in these markets.

In 2013, the free-to-use Current Account Switching Service was introduced, reducing time taken for a current account switch to seven working days. March 2016 saw the highest level of switching to date, with a 20% increase in current account switches compared to the previous quarter. While legislative contribution to consumer advocacy and the tackling of anti-competitive switching policies has been successful in the mortgage market, other markets are in need of similar legislation.

Citizens Advice has already released a consultation response where they acknowledge that the system of mobile phone service switching is unnecessarily complex and that concerns about difficulty often dissuade consumers from switching their provider. This results from a system where the consumer must contact their original provider (the losing provider) to cancel their contract before they move to a new provider (the gaining provider), and so adding difficulty to provider switching. Instead, Citizens Advice suggest moving to a ‘gaining provider’ led system where the consumer’s new supplier takes responsibility for ensuring a new account is opened and that the consumer’s account at their previous supplier is closed. Some essential markets have already moved to ‘gaining provider’ led switching processes, such as broadband, landline and energy supplier.

The government this year compiled a list of principles for switching providers to ensure competition:

  • Switching should be free to the consumer, unless they are aware of and have consented to fair and reasonable restrictions and charges to do so
  • The switching process itself should be quick, at an agreed date
  • The switching process should be led by the organisation with most interest in making the switching process work effectively – such as, ‘the gaining provider’
  • Consumers should have access to their consumption or transaction data. This should be in a format that can be easily reused and they should be able to authorise third parties such as comparison sites to access their data to help them to switch
  • Sites and tools providing comparisons to consumers that receive payments from suppliers should make clear where this affects the presentation of results

 

Carl Packman, Research and Good Practice Manager at the Financial Health Exchange, Toynbee Hall, said:
“We welcome government aims to maintain a competitive business environment, one in which consumers are equipped with the knowledge to make the right choices for themselves and be able to switch providers easily and seamlessly.

“The Financial Health Exchange has travelled across the country discussing the topic of low income consumers who by virtue of their financial situation often pay the most for their services, whether that is the high cost of credit, being “locked-in” to a pre-payment energy meter rather than a direct debit, or having to take out a Pay-As-You-Go mobile phone sim rather than a longer term contract.

“Service providers must do more to communicate the benefits of switching to those groups most affected by the issues above, what we call the “poverty premium”. We know there is relatively low levels of engagement among low income groups on switching services and that is why both the Competition and Markets Authority (CMA) and Which? have found that people in the lowest socio-economic groups are far less likely to switch their current account providers. Provider firms have a huge part to play in repairing this problem.”

Hopefully the call for evidence will provide practical regulation and policies, for markets such as mobile phones, broadband and mortgages, to enable people to switch service providers more easily and faster: and so helping to remove the barriers for people who are missing out on lower prices for their services.