View the article online at http://citywire.co.uk/money/article/a525621
'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.
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'.
News sponsored by:
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
What can SLI bring to the table for those who want to put their money into investment trusts?
More about this:
What others are saying
Tools from Citywire Money
From the Forums
Weekly email from The Lolly
Get simple, easy ways to make more from your money. Just enter your email address below
An error occured while subscribing your email. Please try again later.
Thank you for registering for your weekly newsletter from The Lolly.
Keep an eye out for us in your inbox, and please add email@example.com to your safe senders list so we don't get junked.
by Daniel Grote on Jan 30, 2015 at 17:06