A super-complaint to the Office of Fair Trading about the amount travellers pay in foreign exchange rates has been issued by a consumer watchdog.
Consumer Focus estimates that charges to customers for exchanging money are around £1 billion a year. It believes a combination of complex charges and poor or misleading information means consumers are paying too much when buying foreign money or using cards overseas.
Because it is unclear how much of these charges are warranted and how much are excessive, the body is calling on the OFT to carry out its own investigation. It identifies three key areas for investigation:
- Charges for using debit or credit cards overseas are “unnecessarily complex and confusing”. They vary significantly and make it difficult for people to establish the full costs and shop around for better deals.
- Banks and credit card providers charge customers cash withdrawal fees when buying travel money with a card in the UK. These charges 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).
- The use of marketing phrases such as ‘0% commission’ and ‘competitive exchange rates’ by suppliers is misleading and makes 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.
The organisation is calling for a number of measures to help consumers:
- Simplification of charging structures for using cards overseas
- Cash withdrawal charges on UK transactions should be cost-reflective or even banned if not justified
- Clearer explanation of exchange rates used by suppliers to make comparison easier for consumers
Consumer Focus said customers would benefit from a clear illustration of the rates they will receive, for example, exactly how much foreign currency £100 will buy once all charges have been applied
Chief executive Mike O’Connor 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.
“If holidaymakers buy their currency from the Post Office, travel agent or bureaux de change many are stung with cash withdrawal charges by their bank, effectively for the privilege of taking money out of their own accounts.
“Individuals buy holiday money infrequently and so may not shop around much or may just stick with the same supplier.
“A cocktail of confusing charges and poor transparency means collectively we are losing out in a big way. We are calling on the OFT to investigate and work with the industry to send these dubious and complex charges packing.”
A recent Twitter campaign orchestrated by FairFX.com saw 200 users call on the OFT to ban “0% commission advertising” in the foreign exchange sector. The OFT replied that it is considering the issue.