Currency exchange outweighs credit card victory for UK shoppers abroad

The House of Lords has told credit card companies they must refund UK consumers who buy goods and services abroad that are undelivered or damaged. But despite this victory for British shoppers, the charges and poor currency exchange rates that come with many credit cards still make other payment methods more attractive.

In the October 31 decision, five Law Lords dismissed an appeal by high street bank Lloyds TSB and Tesco Personal Finance, an offshoot of the supermarket giant, who had challenged the rights of their UK customers in the courts.

Favourable currency exchange rates make decision good news

The Lords confirmed that credit card issuers are "individually and jointly liable with suppliers if a consumer has a valid claim against the supplier for misrepresentation or breach of contract," the chief executive of the Office of Fair Trading told BBC Online. One of the Lords was quoted as saying that "there is nothing in the language of [the law] to exclude foreign transactions".

The decision means any goods people buy with their credit card abroad are effectively insured against loss or damage until the buyer returns to the UK – good news for anyone taking advantage of the present favourable currency exchange rates with the US.

Before the decision, though, many travellers would have been covered through loss or damage anyway through a travel insurance policy (although currency exchange levels can mean the level of protection varies – check your policy before assuming a diamond ring bought from Tiffany's will be automatically covered).

What the Lords decision hasn't changed is the charges most credit card companies levy on all purchases made abroad (usually excused as a currency conversion charge; effectively a currency exchange commission). A $2,500 Tiffany ring would cost less than £1,250 at today's currency exchange rates but a credit card's handling fee could add up to £50 to that figure.

Credit card currency exchange rates not always best

Add the effect of their currency exchange rates, which aren't always the most competitive, and the same ring could cost more than £1,350. Add on any UK import duty and VAT payable and the amount saved would be severely reduced.

In contrast, making arrangements with better currency exchange rates and lower (or no) charges when buying a big-ticket item or two while abroad that favour may mean you get a far better deal.

The House of Lords' decision is a victory for UK consumers, but there are still better ways to take advantage of current currency exchange rates.

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