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'Hidden' foreign currency charges spark OFT probe

Excessive foreign currency charges cost UK holidaymakers £1bn every year, Consumer Focus today warned the Office of Fair Trading.

 
'Hidden' foreign currency charges spark OFT probe

Consumer Focus today launched a super complaint calling on the Office of Fair Trading (OFT) to investigate costly, complex and misleading foreign currency charges.

The ‘excessive’ charges cost UK holidaymakers some £1 billion every year and it is unclear how much of these charges are warranted, the consumer group warned.

After reviewing the market Consumer Focus has highlighted three key areas which need investigating:

  • Debit and credit cards charges are unnecessarily complex and confusing. They vary significantly, making it difficult for people to establish the full costs and shop around for better deals.
  • Cash withdrawal fees when buying travel money with a card in the UK do not reflect actual costs. A debit card payment costs on average 9p to process and a credit card payment just 37p, yet charges for buying currency with a card are typically 1.5-2% of the amount converted (up to a ceiling of £4.50).
  • Misleading marketing phrases such as ‘0% commission' and ‘competitive exchange rates' make it difficult for consumers to make informed choices and compare banks with bureaux de change or the Post Office. In practice, the exchange rates already include mark-ups levied by suppliers and so are not fee-free as ‘0% commission' implies.

Consumer Focus also criticised a practice known as ‘exchange-rate loading’ where card providers add a surcharge of up to 3% of the currency cost onto the exchange rate offered – and then hit customers with an additional charge of up to £4.50 for using a foreign ATM.

There may also be cash advance charges and higher interest rates for using a credit card, Consumer Focus said. The structure of these charges meanwhile is often buried in the small print so it is difficult for people to work out how much they are paying for their holiday money.

Mike O'Connor, chief executive of Consumer Focus, said: ‘Almost half of us travel abroad every year and we face a confusing array of often hidden charges every time we buy currency’.

‘Converting £500 into euros can cost from under £10 to over £30 depending on where you switch your money. This is a huge difference for essentially providing the same service and typically banks offer the worst deals,’ he said. ‘We are calling on the OFT to investigate and work with the industry to send these dubious and complex charges packing’.

Consumer Focus wants to see the charges for using your card overseas made simpler, cash withdrawal charges made cost reflective or banned altogether and exchange rates made clearer. Customers would benefit being told exactly how much foreign currency £100, for example, will buy once all charges have been applied.

The OFT now has 90 days to consider the super-complaint and will publish its response on or before 20 December.

Andrew Hagger, of price comparison website Moneynet, meanwhile said: 'While consumers may get confused and upset over the cost of credit card charges and currency purchases, it's the debit card market where we see the widest variation in charging tariffs'.

'The building societies are offering the most consumer friendly tariffs, but it's the banks that charge a fixed fee for debit card purchases that customers need to be most wary of. The purchase transaction fees range from £1 (Lloyds TSB) to £1.50 (Halifax), regardless of the size of the debit card transaction and are in addition to the 2.75%/2.99% foreign loading fees,' he explained. 'If you're not aware of the purchase transaction costs, a holidaymaker making a large number of low value transactions will get a nasty surprise when the post holiday statement lands on the doormat'.

11 comments so far. Why not have your say?

Mike Greenland

Sep 21, 2011 at 13:03

How about the outrageous charges that Barclay's and some others make for a sterling transaction to Travelex. They assume it is currency and sting you a huge fee. They don't charge me when I buy something in John Lewis so why should they when I buy something from Travelex (and others) in ££££'s

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Michael Locke

Sep 21, 2011 at 13:04

And about time exchange rates for the $ and Euro have up to 8% spreads between buy and sell, this is a rip off business.

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Smithy

Sep 21, 2011 at 13:52

Michael, of course it is a rip-off business. It's banking.

Run by a wunch of bankers.

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joe stalin

Sep 21, 2011 at 14:29

Oh now that's really rich. yep we have found yet another way how those greedy banks are ripping off Joe public - OMG what ever next! But before we get too hot under the collar and run to our bash the banker super hero Vince, perhaps some of you should take time out to look at the amount of tax you pay to the Treasury before they let you escape to Magaluf and be in a position to give the banks a miserable couple of quid in commision.

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mr rowe

Sep 21, 2011 at 15:30

Correct me if i'm wrong, but 10/12 years ago or so, I seem to recall when I went backpacking the banks never charged you a usage fee for overseas transactions on a debit card (as opposed to the 2.95% they seem to charge now) and they used to give a decent rate of exchange

so what has changed? processing fees must be much less now, so I guess they have seen it as a way to gouge their customers more?

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Lee S

Sep 21, 2011 at 15:35

Look at the interbank exchange rates and you'll see just how bad we get it on the high street. Last time I changed money I got quotes from different places and Thompson Travel gave me a better rate than all of them, but they weren't the best before I got more quotes.

Negotiate a better deal.

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Michael Locke

Sep 21, 2011 at 15:40

Like I said the spread is about 8% compare that with 0.1% on the wholesale market. It does not cost them that much to handle foreign exchange.

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georges

Sep 21, 2011 at 18:42

Hidden in all overseas use of a credit card is a 3% charge. I bet the FTSE100 companies don't tolerate that or the wide spreads on exchange rates. Retail customers are a small part of the market so don't influence the overall rates - the banks can choose to offer good or bad rates - given that we are captive - you guess which they choose.

It's like removing cheque books (now on hold) and gtee card (gone) - a small service that is not worth it to them despite the "social value".

some of the bankers should have a word with their grannies to find out how the real world works.

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Nick-

Sep 21, 2011 at 21:14

When going abroad never ever change money in the UK. Always change your cash at the country you are in. As an example in the past I changed my cash for Egyption £s at the Post Office because of their misleading advertisement claiming 0% commission. However, subsrquently I discovered in Egypt I was getting 10% more for my cash.

What they don't tell you in the UK is that the exchange rate they use is loaded aginst you. You are better off paying a commission as long as you get an ongoing market spot price.

In comparison just look at the outrageous exchange rates offered at airports, but surprisingly they are there and thriving. I can only assume there are lot of naive passengers out there.

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derek farman

Sep 22, 2011 at 08:53

Yep ....I have a Nat West advantage account where their blurb says that they charge nil commission for currency . So I bought some euros from them, and found a day later, on checking, that the Post Office would have given me many more euros for my money . So much for having a privelage account !

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Lee S

Sep 22, 2011 at 09:30

Another thing is that the commission-free offers only apply for changing your unspent currency when you take it back to the place you got it from. This means than consumers cannot shop around for the best sell price (consumer side).

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