Consumers could save millions after travel money review
This means that from the end of 2012, consumers can use their debit cards to buy foreign exchange or travellers' cheques from banks, bureaux de change, the Post Office and travel agents and know there aren't any hidden charges simply for paying on a card, Consumer Focus said (there are no fees for changing money in cash). Its super-complaint on sneaky foreign exchange charges – typically ranging from 1.5% to 2% - prompted the OFT's review.
But the consumer group lamented that the changes don't go far enough, and wants them to be implemented more quickly. In particular, it wants the timetable for scrapping charges for using debit cards to buy foreign currency sped up. "This should happen as soon as possible, certainly before the summer holiday season in 2012. Some banks say they will have changes in place by summer so there is no excuse for others not to follow their lead," the consumer group said.
It also said card companies still need to make using cards overseas simpler, and ideally before 2013 - the final deadline.
The investigation revealed that banks and credit companies make £1.1 billion a year from holidaymakers. Once abroad, holidaymakers pay up to 6% to withdraw money from cash machines. Banks were ordered to clearly reveal the true amount they are charging, rather than burying it in the small print or even in separate documents. This means customers can work out how much exactly they are paying, and shop around for a better deal.
The OFT said: "We found that the cumulative nature of foreign use charges is often not well understood by consumers. A number of card providers do not break out and show the exchange rate fee on statements. Our consumer research suggests that the majority of consumers are unclear about the charges that may apply."
Lloyds, HSBC, Co-op, Capital One, RBS/Natwest and American Express have agreed to display the exchange rate fees more clearly on their monthly and annual bank statements.
Moreover, many foreign currency firms promised to review their marketing after the OFT found 0% commission deals were often misleading. Consumers will be less likely to be caught out by bous 0% commission offers, which are not fee-free as the exchange rates already include mark-ups.
Stevan Litobac, technical director at MyTravelMoney.co.uk, said:"Although it is positive that the OFT has recognised that there is an issue with the way in which foreign currency providers advertise rates, the measures don't go far enough, quickly enough.
"Currency providers are abusing the trust customers place in their brands and are giving the false impression that '0% commission' means they make no money from the transaction. What is really happening is that most customers are paying over 10% more than they need to for their travel money, which goes straight into the provider's pocket. It's an opaque and confusing market.
"The worst culprits are airport bureaus, which offer terrible rates, building in margins of up to 15%. We estimate customers are collectively losing over £400 million every year by not sourcing better deals. Furthermore, 67% of holidaymakers do not tend to shop around for travel money and shun the advised two-week preparation time to research exchange rates, meaning they're more likely to panic buy foreign money at terrible rates."
The best exchange rates are found online and travellers can save a significant amount of money by using comparisons sites to search for the best rates on the day, order online and either have the money delivered or pick it up from a local branch.