OFT to investigate foreign currency charges following watchdog complaint

The Office of Fair Trading (OFT) said it would look into issues in the foreign currency market after receiving a 'super-complaint' from consumer watchdog group Consumer Focus.

"The watchdog believes that a combination of complex charges and poor or misleading information means consumers are paying too much when buying foreign money or using cards overseas," a Consumer Focus statement said.

"Consumer Focus estimates that charges to customers for exchanging money are around £1 billion per year. It is unclear how much of these charges are warranted and how much are excessive, which is why Consumer Focus is calling on the OFT to carry out its own investigation," the statement said.

The OFT will investigate whether charges banks and credit card providers apply to buying foreign currency in the UK are unfair and restrict competition and consumer choice, it said.

Consumer Focus claimed that the charges that are applied "do not reflect actual costs" as some companies charge up to £4.50 for buying currency when the average cost for processing payments on debit and credit cards is 9p and 37p respectively.

The regulators' investigation will also look into whether consumers are being prevented from making "well informed choices" because "complex and unclear charges applied when using credit or debit cards abroad are confusing". Consumer Focus said that because overseas card charges "vary significantly" it is difficult for people to "establish full costs and shop around for better deals".

Consumer Focus also asked the OFT to investigate the use of marketing phrases it believes are misleading. The regulator said it will look into the use of phrases by some UK foreign currency retailers that promise '0% commission' and 'competitive exchange rates' and whether they "may mislead consumers and prevent them from shopping around".

"In practice, the exchange rates already include mark-ups levied by suppliers and so are not fee-free as ‘0% commission’ implies," Consumer Focus' statement said.

"The OFT will now consider the issues raised in the super-complaint in order to establish whether or not any feature, or combination of features, in the relevant market is, or appears to be, significantly harming the interests of consumers," the OFT said in a statement.

The Consumer Protection from Unfair Trading Regulations prohibit unfair, misleading or aggressive selling practices. The OFT has the power to initiate legal proceedings against companies in breach of the regulations.

Consumer Focus conducted research (46-page / 2.45MB PDF) into the 'hidden costs' of holidays prior to submitting its super-complaint. It said 73% of UK holidaymakers were aware of being charged on travel money, but that their knowledge of specific charges was "vague".

"The best known charges were those for using foreign ATM machines – 65% of people were aware of these. Just over half (54%) of people knew about exchange rate loading and a similar number (51%) of minimum charges on transactions," the watchdog's report about its research said.

Under the Enterprise Act super-complaints can be made to the OFT by a designated consumer body when it thinks that "a feature, or combination of features, of a UK market is, or appears to be, significantly harming the interests of consumers". Within 90 days the OFT must publish a response detailing if and what course of action it plans to take and why.

The regulator said it will shortly ask "interested parties" to submit information that will aid its review of the market and will publish the result of its investigation on 20 December at the latest.