Consumer Focus 'super complaint' on foreign currency charges

Updated October 2011

The Complaint

On 21 September 2011, The Office of Fair Trading (OFT) received a 'super complaint' from the watchdog Consumer Focus in relation to charges levied against consumers in foreign currency transactions.

Consumer Focus is particularly concerned about the following three areas which they feel give rise to significant consumer detriment.

• The charges levied for using credit and debit cards abroad are "unnecessarily complex and confusing" - leading to consumers struggling to determine the real costs of using their card abroad and therefore denying them the opportunity to make well informed choices;
• The charges levied for purchasing foreign currency in the UK do not accurately reflect the actual costs involved and are therefore unfair;
• UK foreign currency retailers use phrases such as '0% commission' and 'competitive exchange rates', which may be confusing and misleading for the consumer (For example, a 0% commission is not charge free, because there will already be a mark up by suppliers included in the price).

A spokesperson for the British Bankers Association (BBA) has already responded by pointing out that 'transaction costs abroad are driven by costs of overseas payment systems.' The BBA also expressed its disappointment that Consumer Focus did not approach the industry directly before taking their complaint to the OFT.

Meanwhile, the popular press has already launched an attack against banks, headlining with inflammatory statements such as 'Greedy Banks Cash in every time we use cards overseas.' There were also accusations of 'taking advantage of hard-pressed families', so expect complaints volumes to surge.

The OFT will consider the complaint and will consult with interested parties before publishing a response on or before 20 December 2011.

The Existing Rules

The existing rules for providers of payment services, including foreign currency transactions, are contained in the Payment Services Regulations 2009 (PSRs) and the Financial Services Authority's (FSA) Banking: Conduct of Business Sourcebook (BCOBS).

BCOBS sets out a general requirement to provide customers with details of any charges payable by or on behalf of a customer in relation to each service and any changes to those charges.

The PSRs require that a provider must supply the customer with information on the charges payable for a payment service. In particular, where a currency conversion service is offered, the party offering the service may have to disclose, amongst other things, to the payer:

• all charges payable to the provider and, where applicable, a breakdown of the amounts of any charges;
• details of any interest and exchange rates to be applied

Where interest and exchange rates are to be used, the method of calculating the actual interest and the relevant date and index or base for determining such interest or exchange rates must be supplied to the customer. In addition, when transferring funds on behalf of the customer, the amount of any transaction in the currency in which the customer's account is debited will need to be included and the amount of the transaction after the currency conversion.

Finally, providers need to be careful to avoid contravening the Consumer Protection from Unfair Trading Regulations 2008. These rules make it an offence to, amongst other things, promote a product in a manner which materially distorts the behaviour of the average consumer.

Supplying all of the relevant information, up-to-date, can present serious logistical difficulties for providers - particularly so in a volatile economic market, such as the one that we currently have, where the Foreign Exchange rates change frequently.

The challenge, therefore, facing banks, building societies and other payments service providers is communicating all this complex information in a way that is clear, concise and transparent so that the customer is able to make an informed decision on whether to use these services.

How could the complaint impact on your business?

The OFT has yet to decide on whether to take any action in response to the 'super complaint' but Consumer Focus is particularly concerned that customers have a lack of comprehensible information that would enable them to make an informed choice on which provider to use.

The FSA has indicated that it will take a complaints-based supervision approach to its regulation of the PSRs and the delivery of the 'super complaint' may mean that FSA will be looking closely at firms to ensure that they are PSR compliant.

The OFT may look at requiring providers to supply a clear illustration of how their charges will work to customers, in a format which they can understand. Consumer Focus suggested, as an example, advising on how much of a particular currency £100 would buy, once all charges have been applied, in order that they can compare providers.

On this point, however, it is interesting to note that of the 2,000 people interviewed as part of the Consumer Focus study, 21% did not shop around for travel money because they were short of time. A further 21% did not shop around because they did not consider it of significant importance. Only 17% did not shop around because they thought that providers' costs were all about the same. It is, therefore, questionable whether such a step would be of benefit to a substantial number of consumers.

It is also worth noting that the 'super complaint' was lodged by Consumer Focus, who produced a damning pension-switching report in July 2011 which was criticised by the FSA for being a 'very small' survey and 'not necessarily representative of the market.' The OFT will only take further action if they conclude that the interests of consumers are being 'significantly harmed' in relation to the criticisms of Consumer Focus. We will keep a watchful eye on any developments.

 This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2011. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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