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Super complaint filed over £1bn foreign currency fees

OFT will investigate array of charges and costs associated with buying foreign currency using debit and credit cards

The Office of Fair Trading is to investigate whether UK holidaymakers are paying too much for foreign currency following a super-complaint by a consumer watchdog.

Consumer Focus issued the complaint after its research discovered customers were charged abnout £1bn a year for exchanging money. The report said it was unclear which of these charges were warranted and which were excessive.

“Almost half of us travel abroad every year, and we face a confusing array of hidden charges every time we buy currency,” said Mike O’Connor, chief executive at Consumer Focus. “Converting £500 into euros can cost from less than £10 to more than £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 deal.”

The watchdog found British travellers appeared to be losing out in three key areas:

• Charges for using debit or credit cards overseas are unnecessarily complex and confusing; they vary significantly making 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 do not reflect actual costs – a debit card payment costs on average 9p to process, and a credit card payment 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” is misleading and makes it difficult for consumers to make informed choices and compare banks with bureaux de change or the Post Office. The exchange rates include mark-ups levied by suppliers and so are not fee-free as “0% commission” implies.

The report looked at the exchange rate and charges levied by banks, travel agencies and other currency providers on various dates. On 25 August 2011, for example, it found that someone wanting to change £500 into euros would be charged almost £32 by HSBC and just short of £30 by Barclays compared with just over £17 by the Post Office and £12 by currency exchange company ICE.

Debit or credit cards used abroad typically have surcharges on the exchange rate offered (known as exchange-rate loading) which can be up to 3% of the currency cost, and a further charge for using foreign ATMs. There may also be cash advance charges and higher interest rates for using a credit card.

Lloyds TSB charges are among the highest, with an exchange-rate loading of 2.99% for each debit card purchase abroad, with a minimum charge of £1. To use a cash machine abroad will incur the same exchange rate, resulting in a charge of up to £4.50 each time. It charges 2.95% to use a credit card, with a minimum £3 for cash withdrawals.

The British Bankers’ Association said it was disappointed that Consumer Focus had not alerted it before issuing the super-complaint to the OFT.

“Competition in the holiday money market is not simply between high street banks: it also involves companies which do not usually provide financial services. The report acknowledges only 15% of holidaymakers get their foreign currency from a bank,” it said in a statement.

“Any analysis of this market needs to take full account of the costs to businesses of providing these services – for instance, the cost charged by foreign ATM providers every time a UK card is used. Transaction costs abroad are driven by the costs of overseas payment systems, often in countries where free banking does not exist.”

Consumer Focus is calling for a simplification of charging structures for using cards overseas; cost-reflective cash withdrawal charges, or even a ban if they are not justified; and a clearer explanation of exchange rates used by suppliers to make comparison easier for consumers. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds