Holidaymakers will no longer be charged for purchasing foreign currency with a debit card in the UK at five major banks, the consumer watchdog announced today.
Lloyds Banking Group, Barclays, Royal Bank of Scotland, Santander and the Co-operative Bank have all agreed with the Office of Fair Trading (OFT) to remove the charges, which are typically between 1.5% and 2% of the purchase.
Nationwide, HSBC and Halifax Bank of Scotland do not charge a debit-card fee for purchasing foreign currency in the UK.
Elsewhere, Britain's banks have agreed to give "clearer, more accessible" information about charges for using cards abroad, while many foreign exchanges have agreed to review marketing practices, particularly their use of "0% commission" deals.
The OFT was asked in September to investigate allegations of complex charging and poor information for travellers following a "super-complaint" by Consumer Focus.
The OFT's report found that travel money providers made £1.1 billion in 2010 from the £32 billion spent by Britons abroad, of which £27 billion was while on holiday and included foreign currency purchased in the UK.
Around 40% of foreign currency purchases in the UK are made using cards rather than cash, while close to 80% of respondents in the OFT survey bought at least some foreign currency before travel.
OFT chief executive John Fingleton said the changes agreed by the banks and foreign exchanges should "drive greater competition in the UK travel money market".
He said: "Companies should be earning profits by competing to provide the best value products and services, not through charges that are hard for customers to identify or interpret."
The OFT found during its short investigation that charges for purchasing foreign currency and using cards overseas can be confusing and "not at all clear" for consumers.
The regulator secured agreement from the UK Cards Association, which represents all major credit, debit and charge card issuers, and the British Bankers Association to improve the quality of information on charges for using cards abroad, on websites, statements and through call centres.
Lloyds, HSBC, Co-operative Bank, Capital One, RBS and NatWest and American Express have agreed to display the actual charges incurred by customers for using cards abroad more clearly on their monthly and annual statements, the OFT added.
Consumer Focus found that some 70% of holidaymakers take foreign cash with them on their trip with one in five using credit or debit cards abroad. The watchdog estimates that British travellers altogether take around £10 billion in cash when they go overseas.
The campaigner previously said it costs banks and credit card providers an average of 9p and 37p respectively to process debit and credit card payments, while charges for buying currency with a card are typically 1.5% to 2% of the amount converted, up to a ceiling of £4.50.
Mike O'Connor, Consumer Focus chief executive, said: "It is particularly welcome that the OFT has worked with the big banks to stop withdrawal fees being charged when people buy currency on their card in the UK. It is only right that this unfair cost, which effectively charges customers for the privilege of taking money out of their own account, is stopped.
"We also want to see an end to deliberately misleading marketing phrases such as 'O% commission', as services are not fee-free. Consumers have a right to know how much they are paying for their transaction and whether there are better options available."