Who’s protecting the vulnerable from predatory markets?

It’s pretty obvious. People who can’t sleep watch TV at 3am. People who are drunk or stoned. People who are ill. People who are depressed. In other words: vulnerable people. And remember – advertisers will only do this because it gets them a return, which means those vulnerable people are buying. Advertisers broadcast predatory products and services in the middle of the night to make money from people whose defences are down; the broadcasters then use the money from those predatory advertisers to subsidise programming for everyone else.

This kind of predatory targeting isn’t limited to TV, or to the hours of night time. Payday lenders, pawn brokers and rent-to-buy retailers such as Bright House put their shops on the poorest high streets for exactly the same reason. Doorstep lenders don’t ply their trade on leafy tree-lined avenues, but in tower blocks and downtrodden estates.

On the internet, cookies make it even easier to find prey and chase them from site to site: if you’ve gambled, you’ll find casinos follow you with special offers. If you’ve browsed for a loan, it’s the lenders who pop up on every page. Until I flagged it with Google last year, if you searched for how to voluntarily self-exclude from gambling, it was gambling ads that popped up.

And remember: this isn’t happening in a bubble. It creates cross-subsidies in the market which mean prosperous people pay less. People who don’t switch energy provider keep prices low for those who do. People who run up charges on their credit card keep prices low for those who don’t. Big losses by gambling addicts keep the odds good for those who can stick with the occasional flutter.

I believe this is unfair, though some may disagree, and be comfortable with these kind of subsidies from the poorest to the most financially capable. But protecting the vulnerable from exploitation isn’t just a matter of fairness or morality. Exploitation of stuck customers actually prevents markets from operating effectively – so even market purists should accept it needs to be tackled.

Let me explain.

Inactive consumers who don’t exercise their market right to switch undermine competition. Because they don’t switch, they pay over the odds. In the energy market, for example, they pay hundreds of extra pounds per year. That cash doesn’t, as a general rule, go in the back pockets of the shareholders. It goes to subsidise prices for the switchers, enabling companies to slash costs for the most active – and least vulnerable – market participants.

Then along comes a new company. It can’t match those intoxicatingly low prices because it hasn’t got the legacy customers overpaying. But it can’t persuade the high-paying customers to switch either, because they’re not natural switchers. So the new company attracts no one and it folds. The monopoly – or oligopoly – prevails.

Smart regulation should stop these unfair cross-subsidies from the vulnerable to the affluent, as well as knocking out providers whose business model is predicated on exploiting the vulnerable. Open banking regulation is a great example that should allow fintech innovators to build tools which dive into our bank accounts and help us switch providers, products and deals without even thinking about it. In energy, price caps for vulnerable consumers are helping reduce unfair cross-subsidies, but smart meters could enable us to go much further, with customers automatically switched to the cheapest provider.

But the most important job for regulators is to understand where the traps exist for the most vulnerable consumers. Proper segmentation of customer demographics should be at the core of regulators’ research priorities – because wherever you find a concentration of vulnerable people in a market, you’re finding exploitation. The 3am telegaming. The payday loans and doorstep lenders. The pre-pay energy meters. The fixed odds betting terminals. The fee-charging cash machines.

If a product is only ever bought by people who don’t have a choice, we can be pretty certain it shouldn’t have a place in our consumer markets at all. TV roulette should be the first to go.

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Polly Mackenzie is Director of Demos, a leading cross-party think tank. She served as Director of Policy to the Deputy Prime Minister from 2010-2015.

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