Since the Office of Fair Trading ordered credit card companies to charge a maximum of £12 to overspending customers, companies have been making up for lost profits with a variety of charges applying to other types of spending. A recent report by consumer group Which? argued that credit card companies were being devious and employing underhand tactics to keep their margins high. Martyn Hocking, editor of Which? Money, said
“Credit card providers seem to be resorting to a raft of ingenious methods to recoup lost revenue following the OFT crackdown on penalty fees.”
Sandra Quinn, speaking for the industry body APACS, defended credit card companies, saying:
“We always said that charges would change as a result of the OFT ruling. We have been much more upfront about how charges are applied – every statement has a summary box listing charges and key information about charging.”
Whether or not credit card companies are being clear enough about their charges, thousands of people will come back from their summer holidays to credit card bills they didn’t expect. In 2007, British travellers will spend around £25 billion on plastic abroad, with fees and expenses adding an extra £500 million. This means that on average, consumers spending on plastic overseas pay an extra 2 per cent on top of their purchases, by no means an inconsiderable amount.
Two of the worst culprits in this area are Lloyds TSB and Natwest. Lloyds, (who also recently introduced a fee on dormant credit card accounts), charge 2.75% on overseas card transactions, on top of a £1 flat fee. Natwest has recently increased its fee to 2.75%, with its flat fee increasing by 50p to £1.25.
Most banks charge between 1 and 2% on cash machine withdrawals abroad. HBOS charges a flat fee of £1.50. It is worth noting that Nationwide stands out from its peers in this sphere – it makes no special charges for overseas use of plastic.
The other thing travellers should look out for is an extra charge from the retailer. ‘Dynamic Currency Conversion’ (DDC) works when the retailer gives the customer the option to convert their bill into sterling. This may be attractive for travellers inexperienced in using foreign currencies, and would like to know the sterling value of their purchases. However, the exchange rate offered by the retailer’s DDC can be up to 3% worse than the official rate.
The cheapest way of spending abroad is to buy foreign currency before you depart (the Post Office and Marks and Spencer offer some of the best conversion rates). However, this means you have to budget very accurately, which is not always possible. If you underestimate, you might be forced to buy more expensive currency abroad or use your bank card. If you overestimate, you will be left with foreign currency on your hands which you may have to convert on your return, incurring additional costs.
Before you go away, plan your currency provision. Find out how much your credit / debit card provider will charge you if you use your plastic abroad. This means you won’t have a nasty shock waiting for you on your doormat upon your return.
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