British travellers are paying too much for their foreign currency because of complex charges and misleading information that should be investigated, a consumer watchdog says today.
Consumer Focus is to lodge a “super-complaint” with the Office of Fair Trading and wants the competition regulator to conduct a full-scale investigation of the currency exchange industry.
The watchdog estimates that British travellers spend as much as £1 billion a year converting pounds into foreign currency and believes that they are frequently overcharged.
Mike O’Connor, the chief executive, said: “Almost half of us travel abroad every year and we face a confusing array of often-hidden charges every time we buy currency … We are calling on the OFT to investigate and work with the industry to send these dubious and complex charges packing.”
Consumer Focus calculated that a traveller who exchanges £700 using a combination of buying cash before leaving Britain, withdrawing from overseas ATMs and spending overseas using their credit card will pay between £22 and £39 in charges.
After conducting its own preliminary review of the market, the watchdog concluded that customers were losing out in several ways:
• Charges for using debit or credit cards overseas are “unnecessarily complex and confusing” and vary significantly between providers, making it difficult for customers to shop around;
• Banks and credit card companies charge fees for the purchase of travel money that are disproportionate to the cost of processing those transactions;
• Consumers are lured into buying foreign currency by promises that retailers will charge no commission, whereas in practice their exchange rates already include mark-ups.
The OFT will have 90 days to consider the complaint before deciding whether to take action. If it decides that the complaint has merit, the regulator could take action against foreign exchange companies or recommend changes to regulations governing the market. It could also refer the industry to the Competition Commission for an even more detailed study.
According to Consumer Focus, about 60 per cent of Britons opt to convert sterling into foreign money before leaving Britain. Most commonly, they pre-order cash online for delivery to their homes or pick-up at a branch. Fewer leave it to the airport to buy currency as rates are significantly more expensive.
The Post Office is the most commonly used supplier, used by 29 per cent of holidaymakers who purchase their money before travelling, the report said. Only 15 per cent of consumers use their banks, which typically charge higher rates, to exchange currency.
Just over 40 per cent of holiday-makers choose to withdraw travel funds from automated teller machines when they are overseas, or to use their credit cards to buy goods and services directly in foreign countries.
This can be expensive, as charging structures are complex, with multiple fees often layered on top of each other, Consumer Focus said. The use of cards overseas typically incurs surcharges on top of the current exchange rate of up to 3 per cent of the currency cost, in addition to fixed charges of up to £4.50 for each withdrawal.
These charges are often only detailed in the fine print of the banks’ terms and conditions, which makes it hard for customers to work out exactly how much they are paying for foreign currency, Consumer Focus said.
It is calling for charging structures to be simplified and for suppliers to provide a clearer explanation of how they determine their exchange rates. It also wants charges applied to purchases of foreign currency within Britain to be more reflective of the cost of processing those transactions.