OFT to investigate currency charges after 'super complaint'

Former_MSE_Guy

This is the discussion thread for the following MSE News Story:

"A combination of complex charges and poor information means many are paying too much for foreign cash, Consumer Focus says ..."

Read the full story:
OFT to investigate currency charges after 'super complaint'

NFH

This is long overdue, particularly with regard to the foreign loading fee (typically 2.75% or 2.99%) applied by most UK credit and debit card issuers for purchases and cash withdrawals in currencies other than GBP. In most cases, it is not the card issuers who do the currency conversion but the card networks (e.g. Visa or MasterCard). By the time the transaction reaches the card issuer, it is already in GBP, so it is immaterial to the card issuer that that original transaction was not in GBP. There is no justification for card issuers to make a charge for a service that they do not themselves carry out.

The fee is pure profiteering by card issuers, because there is no more justification in adding such a percentage on non-GBP transactions than there would be on GBP transactions. They only add this fee because many card holders don't notice on non-GBP transactions, whereas they would notice immediately on GBP transactions.

wozearly

Really glad to see this from Consumer Focus.

When it comes to buying currency in advance, having to be transparent about exchange rate (in fairness, this usually is) and fees / commission would be helpful.

Perhaps a good way to encourage comparison in this instance would be to insist that companies provide upfront an example of "This is how much in (currency x) you would receive, after all fees and commission charges, if you gave us £100". That would give us a workable benchmark figure to use for comparison.

The foreign loading fee on cards is also highly frustrating. Ultimately, I've resorted to just accepting it on my standard debit card. I found it a bit too much hassle to dig through all the various options (including taking out a new account / card purely for irregular foreign trips) for what was then a fairly minor saving. I admit, guiltily, I haven't actually looked around since.

Which, I guess, is exactly Consumer Focus' point.

gmang

The "commission free" label has bugged me for years. I don't know why they insist on putting it up there next to the "we buy/we sell" prices. Surely their commission is exactly the difference between the buy and sell price!

zagfles

gmang wrote: »

The "commission free" label has bugged me for years. I don't know why they insist on putting it up there next to the "we buy/we sell" prices.

Yes it's unbelievable they've been allowed to get away with this, particularly with all the nannying we get in other financial services ("your home is at risk if you don't pay your mortgage", duh really? "Shares may go down as well as up" you don't say...)

Surely their commission is exactly the difference between the buy and sell price!

Half the difference, to be fair. But usually the difference is well over 10%, so the commission is over 5%.

And because commission for card use overseas is specifically highlighted in the T&Cs/summary box, many people actually believe they are better of changing cash at somewhere claiming to be "commission free" like the post office than using their card abroad !!

I'd like to see all forex transactions forced to use the interbank rate and then itemise any charge separately.

2sides2everystory

BBA wrote:

"Transaction costs abroad are driven by the costs of overseas payment systems, often in countries where free banking does not exist.

This is dissembling. It is exactly the line that mobile phone companies used to dissemble the truth about their originally exhorbitant and still not right roaming agreements with "overseas" partner networks.

Basically it means BBA can be trusted no more than lying toads.

NFH

zagfles wrote: »

I'd like to see all forex transactions forced to use the interbank rate and then itemise any charge separately.

Nice idea, but it's unworkable. There is no official interbank rate, as there are multiple electronic interbank brokers (e.g. EBS, Reuters, Currenex, Hotspot, FXCM etc), and the prices change every second. It would be impossible for bureaux de change to publish such an interbank rate against which their more static retail rates could be compared.

One answer could be for the percentage of half of the spread to be published alongside the rates, but this still doesn't reflect the true percentage difference from the wholesale rate, because the bureau de change's margin may be different on the bid and the offer depending on supply and demand for banknotes in a particular currency.

davidanddeirdre

Another point re this, while the cost of changing £ into foreign money may be expensive, the cost of changing any surplus back when you get home is often nearly fraudulent. See those ads "Change your surplus foreign cash back with us no commission" and then look at the rate you get for it, you would be better saving it for the next trip or finding a friend who is going there and doing a deal with them. Also, those prices are what foreign visitors are going to pay for changing their money, what will they think of Britain?

benjus

NFH wrote: »

Nice idea, but it's unworkable. There is no official interbank rate, as there are multiple electronic interbank brokers (e.g. EBS, Reuters, Currenex, Hotspot, FXCM etc), and the prices change every second. It would be impossible for bureaux de change to publish such an interbank rate against which their more static retail rates could be compared.

There would be nothing particularly unworkable about forcing banks to use the exchange rate provided to them by the card network (Visa/Mastercard/etc) and itemize any other charges separately.

The situation with bureaux de change is a bit different - I think providing a rate from Reuters (or whatever) for comparison may just serve to confuse customers. Personally I don't think there's a problem with bureaux de change - the rates advertised are generally exactly what you get and there are no hidden charges (except the notorious charge for using some debit cards, which is a separate issue). If someone agrees to accept a terrible exchange rate which was clearly advertised, surely it's their own fault...

benjus

davidanddeirdre wrote: »

Another point re this, while the cost of changing £ into foreign money may be expensive, the cost of changing any surplus back when you get home is often nearly fraudulent. See those ads "Change your surplus foreign cash back with us no commission" and then look at the rate you get for it, you would be better saving it for the next trip or finding a friend who is going there and doing a deal with them. Also, those prices are what foreign visitors are going to pay for changing their money, what will they think of Britain?

If you go to places where lots of tourists congregate, such as London's West End, you'll find plenty of bureaux de change offering very tight margins for converting foreign currency into Sterling.

Voyager2002

gmang wrote: »

The "commission free" label has bugged me for years. I don't know why they insist on putting it up there next to the "we buy/we sell" prices. Surely their commission is exactly the difference between the buy and sell price!

No, there is often a fixed fee, the commission, as well as the exchange rate. For larger amounts it probably makes sense to use a bureaux that charges a commission but offers a better exchange rate. For smaller amounts, the fact that there is no commission compensates for a worse exchange rate.