The entire ‘paying abroad’ industry is under scrutiny. A Consumer Focus super complaint on the subject, means the Office of Fair Trading (OFT) needs to give its view on unclear charges and how they work. We were asked to submit our view, so here’s what we said (mildly edited and in a less formal form)…
Using debit, credit or prepay cards overseas
Foreign currency costs are a secondary consideration for most consumers when choosing credit cards and current accounts.
For this reason we suggest to our site users that the best-practice scenario is to use a credit card prepaid in full, that is used specifically and only for holiday use – chosen for its overseas fees.
There are a number of specialist cards that have low overseas fees (though they are not very good for UK spending) and can be used this way (see the Top overseas plastic guide).
Yet overall, the lack of transparency makes comparing and consumer choice extremely difficult.
i. If a debit, credit or prepaid card adds a foreign exchange loading, that must be broken out in statements
The foreign exchange rate charged on plastic contains a cost most providers keep hidden. The loading is an extra fee of up to 3% on the exchange rate of the day, which effectively means card companies charge for using foreign currency (so, spend £100 worth of euros and it costs £103).
The fact most companies don’t include this on both debit and credit card statements means many consumers are unaware it’s being charged and that they may be able to cut the cost by using other plastic.
Where the loading fee does appear independently on statements, there is usually little description, if any, leaving it unclear what the charge is for.
We propose all loadings must be broken out on statements for each payment and indicate both the cost in pounds and percentages.
ii. The exchange rate used by debit, credit and prepaid cards must be published and available each day
While most cards base their exchange rate on the Visa and Mastercard wholesale rate, not all cards do. Some use their own rates (akin to trackers and standard variable rates in mortgages) and few publish which rate they use.
This makes exchange rate comparisons difficult, even for those who know what a loading is. Therefore we would propose that the exchange rate used must be published in a summary box as well as the loading.
If the exchange rate is not the Visa/Mastercard wholesale rate, the card company must publish the rate being used each day on its website – alongside the Visa/Mastercard rate to allow ease of comparison.
iii. Foreign currency withdrawals should not count as cash withdrawals
On all credit cards and some debit cards (full list on travelmoneymax.com) the purchase of foreign currency isn’t always treated as a UK transaction and is often considered to be a cash withdrawal, incurring an extra fee of around 3%.
Many consumers aren’t aware of this and of the fact that it results in them having to pay higher charges than if they simply withdraw cash from a UK ATM on their debit cards and use that to pay for the foreign exchange. This anomaly needs to be corrected.
iv. Lack of warning about credit card cash withdrawal interest, even if the card’s repaid in full
Spend on most credit cards and repay in full and there’s no interest. Yet if you take cash out, most cards do charge interest even if repaid in full. This is particularly a problem for overseas spending as it’s often the only time people use their credit cards for cash.
Consumers are not aware of this fact, or the majority would be more likely to pay in full at the earliest convenience to save on unnecessary interest costs, and providers do not go out of their way to warn their customers about the consequences of taking cash out on a credit card or paying for currency in this way.
We think this should be relatively straightforward to rectify.
Foreign currency sales in the UK
i. The nonsense of commission free offers
The phrasing used by most foreign currency retailers also concerns us. ‘Commission free’ offers mean little when it is simply paid for by increasing the spread of exchange rates.
While this may be more of an issue with the financial capability of today’s travellers, too many consumers are led to believe that 0% is the best option when it is just one of many elements to be factored into a decision.
Companies should not be allowed to advertise on commission alone without warnings that this does not mean people are necessarily getting a good rate.
ii. Bureau de change transactions must be regulated and safe
While not covered by this investigation, by far the most pressing concern over bureau de change providers in this internet age, is safety of the cash used. This applies especially where money is held by a currency provider eg. buying in advance.
In this case, as happened with Crown Currency Exchange in 2010, if an organisation becomes insolvent consumers have no protection and any money held by is lost. As long as this remains the case consumers will be more likely to use the main high street banks or the Post Office for their travel money needs, which results in restricted competition and a lack of consumer choice in the market as smaller operators are not able to survive, except for a few local specialist dealers.
We believe a review of the regulation of bureau de change safety and consumer protection is therefore necessary.
Those are our views, your thoughts and discussions on this are most welcome below.