After a super-complaint by Consumer Focus the Office of Fair Trading has found that consumers are being disadvantaged by confusing deals for buying travel money and using cards overseas. After industry talks, OFT has announced agreed steps to be taken by banks and other providers. Manana Shrimpling reports.
Topic: Financial services
Who: Office of Fair Trading
Where: UK
When: 20 December 2011
Law as stated at: 31 January 2012
What happened:
The Office of Fair Trading (OFT) has published its response to a super-complaint by Consumer Focus under the Enterprise Act 2002 (see October 2011 marketinglaw.co.uk article "0 commission" travel cash ads probe). In the response, the OFT identifies concerns that charges for purchasing foreign currency and using cards overseas can often be unclear for consumers and reports on a package of voluntary measures agreed with the industry to address these concerns.
Following its review of the travel money market, the OFT considers that the following improvements are required to the current marketing practices when advertising sale of foreign currency in the UK:
- marketing and/or advertising which contain statements claiming '0% commission' should make clear any conditions that apply, including minimum spend requirements, as well as the sales channels that offer 0% commission (in-branch, online, telephone) and any charges relating to each relevant sales channel (e.g. delivery charges);
- advertising claiming 'competitive exchange rates' should only be used if the claim can be substantiated and any material differences in deals being compared are clearly highlighted;
- websites of foreign currency vendors advertising foreign currency services to the public should provide information on exchange rates and identify which sales channels the rates apply to;
- any worked examples and interactive currency calculators should be clear on the sales channel they related to and include details of the charges that may apply;
- any offers to "buyback" unspent foreign currency should make clear the terms on which the deal is offered, including the relevant exchange rate, any time limits, or limits on the amounts that can be returned, and the sales channel through which currency can be returned.
The OFT also raises concerns about lack of transparency about the charges that apply when consumers use debit and credit cards abroad to make purchases. In particular, the dual layer charging structure for transactions (where a card provider's fee is embedded in the exchange rate used, and varies on the card type and whether the transaction is a purchase or a cash withdrawal) was is not always made clear to consumers. According to the OFT, this lack of transparency means consumers are unable to shop around, even though it acknowledges that foreign use charges are not a primary factor for consumers in choosing a current account or credit card.
The OFT also investigated the charges applied when foreign currency is purchased in the UK using debit and credit cards, and raised concerns about the cash withdrawal fee applied by some card providers when a debit card is used to make the purchase. The OFT considers this charge to be unjustified and leading to inefficient consumer behaviour, with consumers being incentivised to withdraw cash to buy the foreign currency to avoid the charge.
In its report, the OFT sets out the voluntary measures agreed by the industry to address the above concerns, including:
- agreement by most of the currency vendors that it engaged to review and amend their advertising where necessary during the course of 2012;
- agreement by the UK Cards Association and the British Bankers Association, on behalf of their members, to give clearer and more accessible information about their charges for using cards abroad on websites, statements and through call centres;
- agreement by certain banks to scrap charges for consumers using their debit cards to purchase foreign currency in the UK (which is typically 1.5-2% of the amount being purchased);
- agreement by certain banks to display the actual charges incurred by customers for using cards abroad more clearly on their monthly and annual statements so that consumers can review these charges upon return – in particular, statements will separate out the multiple charges that may apply to the same transaction.
The OFT is of the opinion that such voluntary agreement from the industry is the quickest and the most cost-effective way of dealing with the issues that it identified.
Why this matters:
Although the OFT has decided not to take further formal action, the voluntary measures are likely to lead to some changes in the industry and the way foreign currency is advertised, including the prominence of information about exchange rates and other fees on banks' terms and conditions, their websites and bank statements.
The report also reminds marketers and advertisers of the importance of clearly setting out any conditions or limitations attached to marketing claims.
The OFT hopes that the results will drive competition in the industry and improve consumer choice. It will monitor the progress of improvements in the UK travel market through the course of 2012. Ultimately, any changes to market practices and the success of those changes will depend on the willingness of the industry to follow and implement these voluntary measures.
