Banks in £1 billion foreign exchange rip off

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There's a good reason why your annual summer holiday seems to break the bank when you get your autumn statements in. It's not the soaring cost of Sangria, it's the fact that the banks are fleecing us for an astonishing £1 billion a year in foreign exchange transactions.

Now the Office of Fair Trading is set to investigate whether these charges constitute an abuse.

Consumer Focus has made a super-complaint to the OFT, arguing that banks are exploiting families by charging a fortune to exchange currency. It says that in an industry worth £1 billion, consumers are being taken for a ride.

It highlighted the fact that there are major disparities between the charges you face for changing the same sum of cash, depending on where and how you do it. It argues that there's no good reason why changing a sum of £500 into euros should cost anything between £10 and more than £30. It has also complained that these charges are not transparent enough for travellers to understand, which means they can't make an informed decision about their spending.

The charges
Part of the issue is that many of the banks charge a percentage fee when you use your card and then an extra charge on top. In order to work out the cost you need to know the percentage and do the maths to work out exactly what each transaction is costing you. For most people this is just too much like hard work for a holiday activity.

Then you need to know your bank's policy on this second charge. Rather than being spelled out, this is usually factored into the exchange rate you are given on the transaction. The rate is therefore a mystery to all of us until we get our credit card bill or bank statement at the end of the month. It's hardly a sensible way to make decisions that can leave us much worse off.

Consumer Focus also drew attention to the practice of advertising a commission-free service, which is usually just translated into a lower exchange rate. This is not only misleading, but makes it incredibly difficult for people to calculate the best way to change money.

And it railed against the charge for using a debit card to buy foreign currency before you travel. The cost to the exchange business is around 9p, but the cost to the customer can be up to £4.50.

Consumer Focus chief executive Mike O'Connor said: "A cocktail of confusing charges and poor transparency means 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."

The banks are defending their position, saying they are slaves to the cost of overseas payment systems, especially in those countries which do not offer free banking. However, we will wait with bated breath to see whether the OFT sides with the banks, or whether the cost of overseas travel could become slightly less ruinous in the next year or so.
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