The Office of Fair Trading is set to investigate a new complaint by consumer watchdog Consumer Focus, whose research found its customers were charged around £1bn a year in fees for exchanging money.
What to watch for
Mike O’Connor, chief executive of Consumer Focus, said “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.”
Consumer Focus mentioned multiple ways that its consumers get lost in the “confusing array of hidden charges every time we buy currency.”
The watchdog organization said that charges for using debit and credit cards are unnecessarily complex and varied in the extreme. They typically tack on surcharges on the exchange rate, called exchange-rate loading, which can add another 3% to the amount you are purchasing.
There may also be higher interest rates for using a credit card, or cash advance charges, all of which add up to consumers never quite knowing how much they will be paying.
In addition, phrases such as “0% commission” make customers believe that they will be getting the best deal, and Consumer Focus argues that customers are unable to make informed choices when faced with misleading marketing.
Charges and fees
The report from Customer Focus showed an astounding difference in charges and fees depending where the customer buys the currency.
The report stated its findings in trying to change £500 into euros on 25 August 2011: HSBC charged almost £32, while Barclays charged around £30. The Post Office, however, charged around £17 in fees and most surprisingly, a currency exchange company, ICE, charged the least at £12.
The report also showed Lloyds TSB has some of the highest charges, as their exchange-rate loading for purchases abroad is 2.99% with a minimum charge of £1, for each purchase.
The British Bankers’ Association (BBA) made a statement saying it was disappointed that Consumer Focus contacted the Office of Fair Trading and not them.
“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,” said the BBA in a statement.
Consumer Focus is calling for a simplification of charging structures and charges that reflect the cost of currency exchange abroad.