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Holy Cow! Credit cards and foreign currency transaction fees

Holy Cow! Credit cards and foreign currency transaction fees

Aug 8th, 2005, 07:54 PM
Join Date: Jan 2003
Posts: 10,605
"Well isn't 2% a fair fee to pay a business for handling our exchanges for us and lending us the money for up to five or six weeks before we have to pay it?

Um, Patrick - that's what the Finance Charge and Visa 1% fees are for...

For $3 at Starbucks, you get coffee. They don't charge another $0.10 if you want it in a cup - it's already in one.
Travelnut is offline  
Aug 9th, 2005, 04:53 AM
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First of all, I'm already paying an annual fee for my mileage MC and Visa that's pretty hefty; and my debit/credit card is held by a bank that holds onto my funds and pays itself whatever interest it makes by investing the money when I'm not using it.

Second, it costs the card-issuing banks the same to handle the electronic transfer of funds when an overseas charge is made, whether it's $10 or $2500., so it's inexcusable to be charging $75. for that $2500.; moreover, the $.30 is much closer to the actual cost of the transaction.

It's an outrageous windfall for the banks, no less than the outrageous windfall for the overseas hotels and restaurants who charge us in dollars.

One can only hope true market forces will take over and card issuers that don't impose such draconian fees will lose business -- but I'm not holding my breath because a.) the imposition of these fees isn't really clear or well-known to the public until travel-savvy types like Fodorites begin to protest and compare notes and b.) other incentives like the mileage awards also cloud the issue and sway choices.

My solution? A card without foreign currency transaction fees dedicated to foreign currency transactions. I don't like adding to the plastic pile at a time of increasing identity theft and pressure on the credit reporting agencies to lower credit ratings for any reason (e.g., too many accounts); but this particular fee infuriates me.
Aug 9th, 2005, 05:43 AM
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Travelnut, huh? What finance charge? I've done a couple of hundred thousand dollars via my Citibank card since 1988 and I have never paid a penny in finance charge. My point was that 1% might be wonderful, but from a business standpoint, it is a pretty minor charge for letting me use "their money for six weeks and not charge me any finance charge. (Yes, I am aware their main income is from the charges to the businesses that took my card, but still I am the one reaping the benefit of their almost free banking services).

And don't forget, we're only talking about them charging us for foreign transactions. Most of those couple of hundred thousand dollars charged over the years, they never charged me a penny for in any way although they were lending me all that money for weeks at a time. I think that happens to be a wonderful service they have provided me totally free.

And about the cup at Starbucks, huh, again? I was talking about the idea that someone said it doesn't really cost the bank three percent to do the paperwork. Of course not, but as a buiness, it is part of their profit margin. That cup is part of the cost of the coffee at Starbucks, but including the cup, the time, the materials, etc. Do you really think Starbuck's total cost on a $2 cup of coffee including the cup is $1.94 and they are only adding 3% to their total cost? Of course not.
Patrick is offline  
Aug 9th, 2005, 08:39 AM
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Visa does not charge you a fee for overseas charges; they do charge your credit card issuer a fee, and most credit card issuers pass that fee on to you. Some don't; some add their own cut. They recently changed the name of this fee from a foreign currency conversion fee to a finance charge. This was apparently in response to the start of dynamic currency conversion, where an intermediate does the currency conversion, and the charge is made in your own currency.

There are plenty of ways to deal with foreign currency, and the ATMs and credit cards are by far the most convenient and economical, especially if you are industrious enough to find a card issuer that has reasonable fees.

I get a laugh out of all the people here ranting about how the banks charge so much for a service that costs them so little. I think its safe to say that none of us knows how much it costs to establish and operate a world-wide financial network. I've read that Visa spends tens of millions of dollars a year on software, and I know that when you make a toll-free (think paid for by the financial network) call to report the loss of your card, someone always answers the phone, and I doubt that's volunteer work.

None of us is forced to use a credit card or the ATM. You can always pay cash (and often get a good discount by doing that).

Cassandra, it costs more to run a 2500 euro trade through a currency exchange than a 10 euro trade, just as it costs more for a dozen eggs than for one.
clevelandbrown is offline  
Aug 9th, 2005, 09:22 AM
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clevelandbrown, glad to see someone agrees with me. Again, I only wish there were a lot more services I use that charge as little as 3%. If you want to talk about "rip off" or charges way over their cost, look at your phone or cell phone bill some time.
Patrick is offline  
Aug 9th, 2005, 09:31 AM
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Well, actually your phone or cell bill doesn't tell you very much about how much it costs to operate a network, and this applies to the credit card switches as well. Those numbers are in the carrier's Annual Report (which is probably available on line, if you're interested). If their net net is more than a few percent, I'd be astounded. And anyway, they're stock corporations, so if you think they're getting rich, you can buy (a piece of) the companies and get fat yourself.

Worldcom, you will recall, went broke in the comm business, and forced their competition to run up huge deficits trying to match their phony revenue figures. The shock waves are still reverberating throughout board rooms.
Robespierre is offline  
Aug 9th, 2005, 10:52 AM
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I don't have any credit cards that add on for foreign charges, and I do understand that extra two pct may be worth it to some people who like their card for some other reason, perhaps. Especially if you rarely had foreign charges and were really satisfied.

Now I don't agree with those who think a bank should provide all kinds of services for free, and talk about how unfair it is to pay a $2 ATM charge for the convenience of using some other bank's machines in a foreign country to get money from your account in the US. I thikn it is very reasonable to pay $2 or so for that convenience, and don't agree it should be totally free "because it's my money" as some people say. Yeah, it is, but it's not your bank or machinery, software, etc.

So I think I'm middle-of-the-road on these points, but even I think the extra 2 pct surcharge SOLELY for foreign charges is a total ripoff and unjustified. As someone said, the cost of that transaction is not related to the amount of it and thus assessing in percentages isn't fair. It also doesn't make sense to me to say it's fair because I don't get a bill to pay until the end of the month so I am borrowing money for free. That has nothing to do with foreign charges, so why should they be targeted more than any other charges? It would make more sense just to spread costs across everything.

As a matter of fact, I was reading an article in the newspaper recently and found out that these foreign charge fees made up an astronomical amount of Visa's profits. It almost looked like a mistake to me, as I couldn't believe it since so many people don't travel abroad. It was really high, something like 25-33 pct. I may be using the word "profit" incorrectly, as that doeesn't seem possible, but I know the bottom line is they are making a lot of money by disproportionately targeting people who travel abroad way beyond the "cost" of the services or business sensibly attributed to that service.

That may not bother you, but it bothers me.
Christina is offline  
Aug 9th, 2005, 11:04 AM
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well, I found the item, and it was in the recent Wash Post article on DCC. In that article, the Nilson Report said that Visa International took in $424 million in currency exchange fees for the recent fiscal year (ending 9/04), which was nearly 30 percent of its annual revenue.

So 30 pct of revenues isn't the same as of profits, and I don't know the relationship for them, but that just seems incredible to me.
Christina is offline  
Aug 9th, 2005, 11:05 AM
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I love how they call it a conversion fee. It's all done by computer with very little effort. Its more like a "conversion profit".

One good trick for using ATM's and avoiding a fee...

Open a checking account at metlifebank.com . Not only do you get high interest rates (around 3.15%) but you get a non-visa ATM card which they don't charge you a fee to use. Conversions don't have a surcharge and if you use a bank that charges a fee they will refund up to three of these a month. I don't think banks in France charge an ATM fee.
richardab is offline  
Aug 9th, 2005, 03:01 PM
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My bank offers a choice of what they call a check and cash card, one allied with the Maestro network, the other with, I think, Mastercard. I asked which would be accepted at the most ATMs, and they said the Mastercard. by a very large margin. That is certainly something to consider in choosing.

I hate wasting travel time looking for an ATM that will work with my card, so I'll opt for the card with the widest acceptance.

There must be a lot of bureaucrats and techers in this forum, all shocked that a major financial corporation would make millions of dollars!
clevelandbrown is offline  
Aug 14th, 2005, 06:37 PM
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I'm surprised at how few people understand these fees, which used to be called Foreign Currency Conversion fees, but which are rapidly getting new names for obvious reasons -- truth in labeling one of them.

Visa/Plus or MasterCard/Maestro handle the network and the currency conversion. You bank gets the charge in dollars just as if you shopped in Hoboken or San Diego and it's the same work for them as any charge you make at home.

Visa and MC used to take one percent for the currency exchange, but it seems that sometimes when you shop abroad, there's no currency exchange so they now take a 1% fee just to cover the cost of doing business abroad or something like that. They actually charge your bank who is likely to pass it on. I hear there are banks who absorb the fee. I don't know why they would and I've not heard of any who do. 1% is a real bargain to those of us who used to change travelers' checks and pay bills in cash.

2, 3 and 4 % may be a bargain as well by comparison to what we paid decades ago. The problem is that no one is doing anything at all to earn a fee. It's simply there because when you charge $100 you're not going to stand for a charge on your statement of $103 or $104. On the other hand when you charge 100€ neither $125, $127 or $128 looks out of line to most people. Rates fluctuate all the time and it's hard to tell exactly how much they added on. Many of you commenting on your statements from banks whose fine prints informs cardholders of a charge of two percent seem to be convinced there is no surcharge simply because there's no line item and the amount seems close enough for government work.

It's probably worth noting that it's been my experience that banks whose credit cards have a surcharge for foreign transactions add the same charge to ATM withdrawals. Makes sense as these are handled by Visa or MC as well thought the same networks. So you don't beat the charge by paying in cash. Two percent of ten thousand dollars is two hundred dollars. If you travel a lot, the fees add up.

While I feel they are unethical simply because the banks don't earn the fee -- if they did, they'd have the courage to charge them at home where the work is the same for them -- it's getting harder and harder to avoid the fee. The best you can do is look for the lowest fee. For most people who travel occasionally or for those whose businesses pick up the tap, it's probably not worth the effort, which means less pressure on the banks not to charge.

Banks are entitled to make profits and there are few businesses where one facet of operation doesn't cover the cost of losses elsewhere. In this case, Americans who travel abroad are picking up an unfair share of the bank's operating costs or contributing an unfair share of the profits.

What can I say? I know someone will respond denying the fact that their bank charges a fee because because it's buried on their statment. Read the fine print in your next agreement update. Years ago, I took 100 francs from the same ATM in France in rapid succession using ATM cards from two banks. Both claimed not to have a surcharge, but one admitted they had a surcharge on their credit card. I got two percent fewer francs from that bank. I moved the bulk of my business to the other bank. This month the second bank announced they're taking one percent from here on in. I tend to be abroad a month a year or more. I'll continue to look for the no surcharge cards. For me, this fee is far more important than the interest rate.
Bux is offline  
Aug 14th, 2005, 07:13 PM
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This is not rocket science. I compare the amount I pay for a Euro from the ATM in Paris with the interbank rate for that day, and they are the same number. I compare the amount per Euro on a charge slip to the interbank rate for that day, and they are the same number. There is nothing "buried in the agreement/statement."

This comparison has been automated for your convenience: http://www.xe.com/ccc/ is xe.com's credit card calculator.
Robespierre is offline  
Aug 14th, 2005, 07:39 PM
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I think some of the things you say and assume and your experience may be wrong, bux. I have two cards that do not have a surcharge and I know it because I can read and I know what the terms are and I know what the section says on this point. I can't speak for others whom you may be referring to, but I know mine do not.

I also think your experience in that cards with a surcharge on purchases also charge them on ATM withdrawals is wrong. I wonder if you've actually had such an experience. I know it isn't true for some common debit cards where there is a surcharge on purchases, but not on ATM withdrawals. I don't know as much about cash withdrawals on a credit card as I think that's a really bad idea, anyway, and there are extra charges for just doing that type of tranactions on most credit cards.

You can't always compare your statement to that day's exchange rate, though, as the currency conversion isn't always the exact day of the purchase, but can be within up to a week or 10 days, perhaps. I know I've questioned some items on my Capital One statement and they told me the exact day the conversion was made and the rate, and it wasn't the date of purchase.

I think most credit cards are now itemizing the foreign exchange fee, with is at least something, so I don't know of any cards that are still burying it. I think they have at least learned a lesson on that point due to some lawsuits.

Capital One now absorbs the one percent network fee, from what I've heard. I actually am surprised they do that, as I don't think most people would even know it if they did. I have a Capital One card and I did compare exchanges to the daily rate from my recent trip, and that appears to be true to me (although within one percent, I agree you probably can't tell for sure).
Christina is offline  
Aug 14th, 2005, 07:47 PM
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The date that I use for the comparison is the settlement date, which is detailed on my statement. Both withdrawals and charges are always at par within a fraction of a percent plus or minus, depending on how the exchange rate fluctuated that day. Yes, sometimes I get a little more foreign per dollar than the mid-market rate.
Robespierre is offline  
Aug 14th, 2005, 10:07 PM
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OK - I give. You take the time to register, and your first and only post is to bring up a thread that is 5 days old and add a loooong post full of incorrect assumptions . . . . OK?
janis is offline  
Aug 15th, 2005, 12:38 AM
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Good stories. Currency costs are a very minor part of any trip expense. Years ago Visa/Mastercard were charging me a 6% fee for my billings. I tried adding this charge to the customer's check. Shortly I was notified that what I was doing was illegal. Gasolene stations at that time could have a two price system. The complaining customer came again. He taunted me. I replied, "No problem". He asked why. I told him that I had simply raised all of my prices 10%. USA companies are 'outsourcing and offshoring' in efforts to maintain prices or lower them. Why has no one complained of current oil prices being unfair or rip offs? I predict that airfares will shortly begin to reflect actual costs rather than competitive forces.
GSteed is offline  
Aug 15th, 2005, 07:35 AM
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Robespierre > I compare the amount I pay for a Euro from the ATM in Paris with the interbank rate for that day, and they are the same number. I compare the amount per Euro on a charge slip to the interbank rate for that day, and they are the same number. There is nothing "buried in the agreement/statement."
As I've said, I've heard of banks that don't pass on Visa's one percent. I've never seen one and I can't imagine why they'd eat that one percent. I've had several accounts with banks that don't add their own surcharge. HSBC, just notified me that they were going to add a one percent fee. I'd be happy to know of banks that still don't.

I don't know how accurate that http://www.xe.com/ccc/ page is. I didn't have good results. Here is what I got using two charges on different cards.

For a charge by a bank that said they don't add anything to Visa's one percent, I got a rate of 1.457 on my estimate of 1.00. Actually I find that reasonably close.

For a charge by a bank that admitted they charge two percent over the Visa charge and who refunded their fee because they had offered misleading information on the phone, I got a rate of 0.067 on my estimate of 3.00. I'm at a loss to understand this unless the bank is inconsistently charging the fee. That's unlikely.

Christina > I think some of the things you say and assume and your experience may be wrong, bux.
My experience is my experience. It's neither right nor wrong. my conclusions could be erroneous. Nevertheless, I said I was surprised at how few people understand the fees. I know there are banks that do not charge a fee. I also know that their ranks are diminishing. I have yet to hear of a bank discontinuing the fee. I keep hearing of banks that add the fee.

Christina > don't know as much about cash withdrawals on a credit card as I think that's a really bad idea, anyway, and there are extra charges for just doing that type of tranactions on most credit cards.
I don't believe you can make a cash withdrawal from a credit card. It's called an advance. When I referred to withdrawals, I was referring to the use of a bank card that's an ATM or debit card, not a credit card. Sorry for the confusion if I wasn't clear.

My latest Customer Agreement from Capital One has a paragraph on page 7 that is titled "Foreign Transaction Fee." It reads: "For each transaction made in a country other than the U.S., or the U.S. Territories, we will assess you a finance charge as previously disclosed to you as part of the TILA Account Disclosures or we will disclose to you if required by applicable law. The fee will be based on the U.S. dollar amount of the transaction."

That was so vague that I put in a call before I left for Europe. I was reassured that the language was put there to allow them to add a charge in the future. While I was in Spain, I noticed a note on one of my receipts saying a charge had been included for this transaction and the dollar amount appeared along with the euro amount. This was rare. That note did not appear on all receipts, though I assume the charge was constant and this was not disputed by any of the Capital One reps with whom I've spoken. In fact they all defended just such a charge. I believe a lot of the new terminology and legal warnings are meant to comply with recent court rulings while at the same time, continuing to obscure the actual practices.

It's worth noting here that a representative of consumer-action.org has just contacted me in regard to comments I've made to them about these charges. Apparently Capital One still maintains they neither add a charge, nor pass on the charges from Visa. As I said, this is not what I was told when disputing my bill. I sense I'm too long winded for this group and that a few percentage points is not worth the space I've taken to some of you. I'm reluctant to post my e-mail address, but I'd like to report on any results to consumer-action's follow up.

Janis, my apologies if I've offended you or anyone here. I manage an interactive site with message forums on another topic where it's not unusual for topics to be reopened months after a last post if a member has a question, a bit of information or even an opinion. I came across the Fodor site googling for information about foreign transaction charges and thought my experiences, if not my "assumptions" might be interesting those here and that I might learn about better cards. That's what brought me to register and post. If you've all settled the matter to your satisfaction, I'm sorry to have bothered anyone with my loooong post. Please don't respond and I won't have anything to add.
Bux is offline  
Aug 15th, 2005, 09:10 AM
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Bux: I think the fee you were charged in Spain was not from Capital One. From your description of the receipt, you were privileged to undergo dynamic currency conversion, where the charge is converted from foreign currency to your native currency before the charge is run through the Visa network. The fee you paid was split between the merchant and the intermediate company that did the conversion.

Per Visa's rules, you would have had to consent to the conversion, and there may very well be a line on the receipt you signed saying that you did consent. Merchants apparently rarely ask if you want this service, and often assert that it is done automatically and they cannot change it. To avoid this fee, demand that all your charges be put through in the currency where the sale is made.

I don't bother looking up each transaction, as I have a trustworthy bank. But a few months ago I dug into the subject and found that Visa, at that time, was basing the conversion on the closing rate of the day preceding posting, and of course there are multiple trading floors, and they asserted they would pick the one of their choosing. Exchange rates fluctuate constantly, of course, and I think if you find a receipt that agrees exactly with the exchange rate you looked up for the day of posting, that is likely to be a coincidence, unless Visa has changed their procedures.
clevelandbrown is offline  
Aug 15th, 2005, 09:50 AM
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For whatever it's worth -- I just received my MBNA Visa statement showing a transaction made by phone to London. I got a fantastic conversion rate with no foreign transaction fee. I was surprised and tend to think someone made a mistake. I'm not questioning this one!
crckwc is offline  
Aug 15th, 2005, 10:01 AM
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"I don't bother looking up each transaction, as I have a trustworthy bank."

I don't look up each transaction, either. Just enough of them to be sure that my bank remains trustworthy.
Robespierre is offline  

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