Consumer Focus welcomes the measures announced today by the Office of Fair Trading (OFT) to improve the foreign currency market for travellers. These improvements follow a super-complaint issued by the consumer watchdog to the OFT in September. The watchdog argued that a combination of complex charges and poor or misleading information have led to consumers paying too much when buying foreign money or using cards overseas.
Following a swift and effective review of the market, following Consumer Focus’s super-complaint, the OFT has worked with the industry to tackle the three major elements raised by the watchdog:
- All of the major banks have committed to stop charging customers a cash withdrawal fee for using debit cards to buy currency in the UK. This move alone could save millions of pounds each year for consumers. This means that from the end of 2012, consumers can use their debit cards to buy foreign exchange from banks, bureau de change, the Post Office and travel agents and know there aren’t hidden charges simply for paying on a card.
- Greater transparency will give customers a clearer idea of what they are being charged when using cards overseas. Some leading banks and lenders have agreed to print all charges and exchange rates clearly on monthly and annual customer statements instead of burying details in small print or even in separate documents. This will mean customers can more easily work out exactly how much they are paying for foreign currency and shop around to get better deals.
- Many foreign currency businesses are to review their marketing to make charges and conditions more easily understood by customers. Consumers will be less likely to be caught out by bogus 0% commission offers, which are not fee-free as the exchange rates already include mark-ups levied by suppliers.
As well as measures announced today to improve the travel money market, Consumer Focus would like to see the industry go further by:
- Speeding up the timetable for scrapping charges for using debit cards to buy foreign exchange. This should happen as soon as possible, certainly before the summer holiday season in 2012. Some banks say they will have changes in place by summer so there is no excuse for others not to follow their lead.
- Providers still need to make using cards overseas simpler. Improved disclosure of these charges is welcome but better still would be a wholesale simplification of this cocktail of charges.1 Again providers should implement any changes to improve customer disclosure as quickly as possible – 2013 should be treated as a final deadline not an aspirational target
- The industry must act on its review of the way travel money is marketed. Financial services generally must learn the lesson that treating consumers fairly and with respect is central to regaining consumer trust.
Mike O’Connor, Chief Executive of Consumer Focus said:
‘Consumers should be able to buy foreign currency without being misled, confused or short-changed. The OFT has agreed with Consumer Focus that people are losing out due to the action of banks and others buying and selling holiday money. The fees charged are opaque and difficult for consumers to calculate.
‘The OFT has addressed the major issues we raised in this market which is good news for consumers. By giving customers clearer and more consistent information, people will find it easier to establish what they have been charged. It is particularly welcome that the OFT has worked with the big banks to stop withdrawal fees being charged when people buy currency on their card in the UK. It is only right that this unfair cost, which effectively charges customers for the privilege of taking money out of their own account, is stopped.
‘We also want to see an end to deliberately misleading marketing phrases such as ‘O% commission’, as services are not fee-free. Consumers have a right to know how much they are paying for their transaction and whether there are better options available.’
Consumer Focus research found that most holiday makers take foreign cash with them on their trip (70 per cent) with one in five using credit or debit cards abroad (21 per cent each). The watchdog estimates that British travellers altogether take around £10 billion in cash when they go overseas.
ENDS
Notes to editors:
For further background please see Consumer Focus’s super-complaint and original press release.
1. Currently consumers face a menu of charges, often with multiple charges layered on top of one another. Cards typically have surcharges on the exchange rate offered (known as exchange-rate loading) which can be up to 3 per cent of the currency cost and a further charge for using foreign ATMs (this may be a fixed fee or banded between £1.50 and £4.50). There may also be cash advance charges and higher interest rates for using a credit card. Cash advance charges are also typically levied from the day the money is debited, rather than giving customers the usual interest free period which can be up to 56 days.
Top tips if travelling this Christmas – before the changes announced today come into force:
- Order your currency as early as possible. Typically online currency exchange specialists will offer the best rates but leaving it until the last moment at airports or ferry terminals before you travel will usually mean you get a much worst deal.
- Consider taking a prepaid card, which you top-up with money before you go. Prepaid cards vary but most can help avoid charges for using ATMs or paying by debit or credit card when abroad
- When abroad, always pay in the local currency on your card, some retailers will ask if you want to pay in sterling which means they earn money from the exchange (and you get a worse rate!)
- Some current accounts and credit cards offer much better terms for customers using them abroad – it is worth shopping around to see if there is one that best meets your needs
