The Competition and Markets Authority's (CMA) action follows a complaint from consumer body Citizens Advice that companies penalise existing customers by charging them higher prices than new customers.
The action by Citizens Advice - dubbed as a "super-complaint" - was launched in September and immediately triggered a comprehensive investigation by the watchdog.
The CMA said the five markets highlighted by Citizens Advice are cash savings, mortgages, household insurance, mobile phone contracts and broadband. Elderly and low-income customers were seen as most vulnerable.
The watchdog found year-on-year stealth price rises, costly exit fees and complex processes to cancel contracts.
It has made several recommendations to regulators and government to help to stop consumers being ripped off.
The CMA said it wanted companies to be publicly held to account for overcharging existing customers and that regulators should publish the size of loyalty penalties in key markets and for each supplier annually.
The watchdog said urgent measures were required and if companies failed to make sufficient progress it might take further action. CMA CEO Andrea Coscelli said people should not have to be constantly "on guard" with regard to pricing, or have to spend hours searching for, or negotiating a good deal. "This must come to an end," Coscelli said. "There must be a step change to protect the people being hardest hit, including targeted price caps where necessary." Britain's finance watchdog - the Financial Conduct Authority - said it was ready to engage with the CMA on the concerns raised by Citizens Advice.
MILLIONS AFFECTED The CMA found that vulnerable people, including the elderly and those on low incomes, were more at risk of paying loyalty penalties. It said millions of people were affected - from around 1 million in the mortgage market to nearly 12 million in the insurance market.
The investigation said damaging practices, which exploit unsuspecting customers, also included requiring customers to auto-renew or did not give them sufficient warning that their contract would be rolled over.
For example, it said that mobile providers must stop charging pay-monthly customers the same rate once they had effectively paid off their handsets at the end of the minimum contract period.
The watchdog will also decide whether consumer law should be reinforced as it found evidence of firms continually raising prices. Huw Evans, director general of the Association of British Insurers, said in response that there needed to be a better balance between the deals offered to new consumers and the interests of long-standing customers.
He said the insurance sector had already taken voluntary, industry-wide action to tackle the concerns being raised.
"The insurance industry is committed to working constructively with the regulators as they take this forward."British broadband operator TalkTalk said it welcomed the CMA's focus on loyalty penalties.
(Editing by Sinead Cruise and Jane Merriman)
By Pamela Barbaglia
