Long-term customers of banks and insurance companies pay more than new customers, who are offered discounts.
That ‘loyalty tax,’ as it’s been dubbed, is widespread in Australia, according to University of Melbourne professor, Allan Fels.
The university’s 2018 research found, on average, customers renewing their insurance policy paid 27 per cent more than new customers. More recent data shows that gap has increased to 34 per cent, which translates to hundreds of dollars for the average home and contents insurance policy.
This is backed up by Australia’s consumer watchdog, the ACCC, which found that loyal customers of both banks and energy providers end up paying more.
Over in the UK, that gap increases to 70 per cent.
But Commonwealth Bank chief executive, Matt Comyn, has denied the bank charges a loyalty tax to the House Economics Committee.
“No, we do not,” he said.
“We don’t seek to distinguish between new and existing customers but we do acknowledge that offers can differ.”
The gap between rates offered to new borrowers and existing customers is currently being investigated by the ACCC, and Comyn acknowledged the big banks still have to work to do to win customers back.
"We expect to be judged on our actions, not on our words," Comyn said.
Interest rate cuts haven’t been passed
This follows the recent cuts to the official cash rate by the Reserve Bank of Australia, which the banks failed to pass on in full citing costs.
“As the Reserve Bank cash rate has reached record lows, we face a difficult balancing act between the multiple, valid interests of our stakeholders,” CBA group executive retail banking services Angus Sullivan said at the time.
“Particularly given it is currently not feasible to pass on the full rate reduction to more than $160 billion of our deposits which are at, or near, zero rates.”
On the topic of mortgage ruts, Westpac CEO Brian Hartzer: “The amount people are paying for loans right now is the lowest we have seen in our professional lifetime.”
Make your money work with Yahoo Finance’s daily newsletter. Sign up here and stay on top of the latest money, news and tech news.