Holidaymakers who buy foreign currency with a debit card in the UK will no longer be charged a transaction fee by five of the major banks as a result of an Office of Fair Trading (OFT) investigation, it was announced today.
Barclays, Co-operative Bank, Lloyds Banking Group, Royal Bank of Scotland and Santander have all agreed with the consumer watchdog to remove the charges, which typically add between 1.5 per cent and 2 per cent to the purchase of travel money.
Currently, buying £500 worth of euros with your debit card could cost an additional fee of around £10 and £30.
But from the end of 2012, consumers can use their debit cards to buy foreign exchange from banks, bureau de change, the Post Office and travel agents without any hidden charges simply for paying on a card.
The banks join Halifax Bank of Scotland, HSBC and Nationwide who already do not charge a debit card fee for purchasing foreign currency in the UK.
The move comes after the OFT was asked in September to investigate allegations of complex charging and poor information for those travelling abroad following a ‘super complaint’ by Consumer Focus.
It is estimated that around 40 per cent of foreign currency purchases in the UK are made using cards rather than cash.
The OFT report found that travel money providers made £1.1billion in 2010 from the £32billion spent by Britons abroad, of which £27billion was while on holiday and included foreign currency purchased in the UK.
Despite the positive step, transactions for debit card purchases abroad - whether paying over the counter or withdrawing cash from ATMs - are unaffected, as are fees for using a credit card to purchase foreign currency.
And some industry experts believe that more needs to be done to stop the confusing foreign currency market.
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 per cent commission’ means they make no money from the transaction.
'What is really happening is that most customers are paying over 10 per cent 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 OFT found during its short investigation that charges for purchasing foreign currency and using cards overseas can be confusing and 'not at all clear' for consumers.
John Fingleton, chief executive at the OFT, said: 'Companies should be earning profits by competing to provide the best value products and services, not through charges that are hard for customers to identify or interpret.'
In turn, Britain's banks have agreed to give ‘clearer, more accessible’ information about charges for using cards abroad, while many foreign exchanges have agreed to review marketing practices, particularly their use of ‘0 per cent commission’ deals.
The regulator secured agreement from the UK Cards Association, which represents all major credit, debit and charge card issuers, and the British Bankers Association to improve the quality of information on charges for using cards abroad, on websites, statements and through call centres.
Lloyds, HSBC, Co-operative Bank, Capital One, RBS and NatWest and American Express have all agreed to display the actual charges incurred by customers for using cards abroad more clearly on their monthly and annual statements, the OFT added.
The campaigner previously said it costs banks and credit card providers an average of 9p and 37p respectively to process debit and credit card payments, while charges for buying currency with a card are typically 1.5 per cent to 2 per cent of the amount converted, up to a ceiling of £4.50.
Mike O'Connor, chief executive at Consumer Focus, said: 'It is particularly welcome that the OFT has worked with the big banks to stop withdrawal fees being charged when people buy currency on their card in the UK.
'It is only right that this unfair cost, which effectively charges customers for the privilege of taking money out of their own account, is stopped.'
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