Consumer Focus has lodged a “super complaint” with the Office of Fair Trading. The target is the travel money industry and areas of concern include complex and unclear charges when using credit cards abroad and dubious use of “0” commission” in foreign exchange service ads. Rebecca Wakeford reports.
Topic: Financial services
Who: Office of Fair Trading (the "OFT")
When: 21 September 2011
Where: United Kingdom
Law stated as at: 4 October 2011
What happened:
On 21 September 2011, the OFT received a super-complaint from the consumer group, Consumer Focus ("CF") calling on the OFT to investigate whether UK holidaymakers are paying too much for their foreign currency. CF estimates UK consumers are charged over £1 billion per year to exchange currency and often customers are paying too much due to complex charges and poor or misleading information.
Under the Enterprise Act 2002 certain designated bodies (including CF) can make a super-complaint to the OFT on the grounds that any feature or features of a market in the UK for goods or services is, or appears to be, significantly harming the interests of consumers.
The CF's super-complaint is founded on the following claims:
- charges applied by many banks and credit card providers for purchases of foreign currency within the UK are unfair and may restrict competition and consumer choice;
- the complex and unclear charges applied when using credit or debit cards abroad are confusing and may prevent consumers from making well informed choices; and
- the use by some UK foreign currency retailers of phrases promising '0% commission' and 'competitive exchange rates' may mislead consumers and prevent them from shopping around.
CF is calling for a number of measures to improve the foreign currency market for consumers, including:
- seeking a simplification of charging structures for using cards overseas, potentially over and above greater disclosure which may not go far enough to create clarity around the complex charging structures currently in place;
- requiring cash-withdrawal charges on UK transactions to be made cost-reflective, or banned if not justified; and
- requiring a clearer explanation of exchange rates used by different suppliers of foreign currency to make comparison easier for consumers.
The complaint is squarely aimed at banks as the providers of debit and credit cards and paves the way for further public criticism and scrutiny of the banking industry. In particular CF criticises the confusing layers of surcharges and withdrawal fees applied on debit and credit card usage abroad, and considers that when buying foreign currency in the UK, hidden charges typically mean that banks offer the worst deals.
Why this matters:
The OFT must issue a response to the super-complaint within 90 days, (by 20 December 2011) and interested parties have been invited to submit their comments and views to OFT.
In preparing its response, the OFT will consider the issues raised in the super-complaint and determine whether or not any feature, or combination of features, in the relevant market is, or appears to be, significantly harming the interests of consumers. If it determines this is the case the OFT then has a number of outcomes it can mandate, including taking enforcement action under consumer or competition legislation, recommending action by the government, a regulatory body (for example, the Financial Services Authority ("FSA")) or other organisation or requiring industry wide agreement to make changes to the way foreign currency is marketed and sold.
As those implicated by the super-complaint will be businesses regulated by the FSA, the complaint is likely to have focused the FSA's attention on this area of business. In particular, it may raise questions as to whether the implicated providers have been complying with the FSA's Principles 5 ("A firm must pay due regard to the interests of its customers and treat them fairly") and 6 ("A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading"). The FSA will be following the outcome of the super-complaint but could pursue its own investigation and possibly enforcement action against providers itself (whether or not directed by the OFT to do so).
For the implicated debit and credit card providers, in the short term they will need to examine their pricing structure for foreign currency and be prepared to justify the structure and the level of charges. If this is found to be excessive or punitive to consumers these charging structures and all associated marketing and product materials will need to be overhauled. The extent of this will be subject to the outcome of the OFT's assessment but it could potentially be a big expense for all affected providers: both in the immediate term in assessing the changes required and implementing them, and in the longer term if the outcome is reduced revenue streams from foreign currency services.
If the super-complaint is upheld this may result in the foreign currency market being opened up, driving competition in the industry and improving consumer choice.
