Expensive and misleading foreign exchange is bleeding holidaymakers dry
UK holidaymakers are paying over the odds for foreign currency because of confusing charges and misleading information, according to Consumer Focus.
The watchdog says customers are charged £1 billion a year in the UK for exchanging money and it is not clear if these charges are warranted.
It has issued a super-complaint to the Office of Fair Trading (OFT) and asked the regulator to conduct its own investigation into the industry.
The watchdog identifies three main areas where the foreign exchange industry is failing. The first is complex charges that prevent holidaymakers from shopping around for a better deal. The second is charges on buying foreign currency with a card not reflecting the costs of the service given. And the third is companies using misleading headline phrases – such as "0% commission" – that do not illustrate hidden mark-ups.
We take on average £10 billion a year abroad in foreign currency and companies need to give a clearer explanation of exchange rates so customers know exactly how much money they will receive – after all the charges have been applied.
Mike O'Connor, chief executive for Consumer Focus, says: "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."
Issues regarding surcharges on credit and debit cards were also raised by the watchdog. O'Connor says the multiple charges "layered on top of each other" mean customers are unclear about how much they will be charged when using a card abroad.
When doing so a surcharge is typically added on top of the exchange rate, which can be up to 3% of the currency cost. There are also further charges for using foreign ATMs of between £1.50 and £4.50 per transaction.
Andrew Hagger, spokesperson for Moneynet, says: "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.
"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."
The difference between two currencies; specifically how much one currency is worth relative to each other. For example, if £1 is worth $1.50, converting sterling to US dollars, the exchange rate is 1.5. Converting dollars to sterling at those levels, the exchange rate is 0.66, so $1 is worth 66p. There are a wide variety of factors that influence the exchange rate, such as a country’s interest rates, inflation, and the state of politics and the economy in that country.
Issued by a bank as part of a current account and, in a nutshell, serves as electronic cash. Unlike a credit or charge card, where you get an interest-free period before you have to settle the bill, the funds spent on a debit card are withdrawn immediately from your current account. Unless you’ve arranged an overdraft, if you don’t have the cash in the account, you can’t spend it.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.