The Credit Card Accountability Responsibility and Disclosure Act of 2009, which is expected to land on the president’s desk later this week, promises to help consumers by prohibiting unfair, misleading and deceptive practices in the credit card market. But those protections may not extend to international travelers.
The problem: While the final bill clamps down on exorbitant foreign exchange fees, it gives credit card companies a license to continue pursuing a parallel fee the industry has been quietly developing.
Here’s the relevant language in the bill:
(3) REASONABLE CURRENCY EXCHANGE FEE- With respect to a credit card account under an open end consumer credit plan, the creditor may impose a fee for exchanging United States currency with foreign currency in an account transaction, only if–
(A) such fee reasonably reflects the costs incurred by the creditor to perform such currency exchange;
(B) the creditor discloses publicly its method for calculating such fee; and
(C) the primary Federal regulator of such creditor determines that the method for calculating such fee complies with this
paragraph.’.
In other words, foreign currency exchange fees may only be imposed in an account transaction if the fee reasonably reflects costs incurred by the creditor and the creditor publicly discloses its method for calculating the fee.
Here’s the problem. Credit card companies are quietly shifting away from currency exchange fees. They’re replacing them with foreign transaction fees, which cover any purchase made across the border — even if it’s in dollars.
These fees are not covered by the bill.
For example, one reader was recently hit with a mysterious three percent fee on her Citibank card when she traveled to Ecuador. The official currency of Ecuador is the greenback. I asked Citi about the fee, and a company spokesman clarified.
The three percent foreign exchange transaction fee is applied to an account regardless of currency at point of sale to all transactions made in a foreign country. This encompasses a foreign purchase that is either converted into US dollars or a foreign purchase in US dollars.
So even if there’s no money to exchange, the credit card company still tacks on a three percent fee on every cross-border purchase. No reasonable person who reads the Credit Card Accountability Responsibility and Disclosure Act of 2009 would conclude that these transaction fees — which are separate from exchange fees — are addressed anywhere in the bill.
Credit card companies will be able to fly through this loophole with impunity before the ink has a chance to dry on the new law.
Congress can still tighten the bill to prevent this kind of abuse. Barney Frank, chairman of the committee on financial services, still has the ability to add language to the bill if it passes in the Senate today, as it is widely expected to.
This might be a good time to let the Congressman know that apart from soon-to-be-regulated foreign exchange fees, credit card companies should not have the ability to charge any surcharge for purchases made overseas.
These purchases don’t cost any more money to credit card companies, and they shouldn’t for us either.
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How does this differ from the following class action lawsuit that the credit card companies have agreed to settle?
“In re Currency Conversion Fee Antitrust Litigation (MDL 1409)
Subject to final Court approval, a settlement has been reached in In re Foreign Currency Conversion Fee Antitrust Litigation (MDL 1409). This web site supplies information about the litigation and the settlement, and provides links to relevant documents for Members of the Settlement Classes and others interested in the settlement.
The lawsuit is about the price cardholders of Visa-, MasterCard-, or Diners Club-branded payment cards were charged to make transactions in a foreign currency, or with a foreign merchant, between February 1, 1996 and November 8, 2006. Plaintiffs challenge how the prices of credit and debit/ATM card foreign transactions were set and disclosed, including claims that Visa, MasterCard, their member banks, and Diners Club conspired to set and conceal fees, typically of 1-3% of foreign transactions, and that Visa and MasterCard inflated their base exchange rates before applying these fees. The Defendants include Visa, MasterCard, Diners Club, Bank of America, Bank One/First USA, Chase, Citibank, MBNA, HSBC/Household, and Washington Mutual/Providian. They deny the Plaintiffs’ claims and say they have done nothing wrong, improper, or unlawful.”
How can this new practice be legal, especially considering the exact title. In the exact title of the new fee it says “foreign exchange transaction fee” which implies EXCHANGE. If there is no exchange, how can it possibly be legal and how can the company explain the charges??
Thanks for pointing out the loophole Chris.
There is a simple solution. Go as much cash as you can. In most of the developed world, you can use your ATM card. Just pull out the maximum and go old-school cash. Divvy up the cash in several smaller portions throughout your pockets, and bags, and you’re even safer than with one credit card in one spot.
Credit cards are now threatening their good customers with more fees and penalties if this law comes to effect. They forgot one thing. They’ve been doing that for years. It is not a threat they can make come true without loosing customers.
Banks: read my typings: Bring it on. I have already let go of two cards because of insane rate increases. Do you really want to kill your own branch of industry? Let me paraphrase their hero Ronald Reagan: “To the fee increasers I say: ‘Go ahead, make my day.’”
One problem with the ATM strategy – banks often charged inflated ATM fees in foreign countries. After returning from Australia a few years ago I was shocked to find that B of A had charged me $5 for every ATM withdrawal – PLUS an exchange fee!
I was shocked to discover this recently too with Citibank, with whom I’d generally been pretty happy with since I swore to never allow a dime of mine to cross HSBC’s threshold ever again. The % fee on credit card transactions didn’t surprise me too much, more that they would charge me a fee for every withdrawal I made PLUS the 3% fee.
When I travelled with my Westpac (Australian- awesome bank) card, I was only charged any fee if I used an ATM of a non-partner bank. When I first moved to the US, I could merrily use BofA ATMS without any fee- in France, BNP- in the UK, I could use Barclays.
Citibank, despite pretensions to the contrary, does not seem to have any such agreement, even with branded Citibank ATM’s in a foreign country.
@linda
Exactly. The same thing almost happened to my sister. Fortunately the teller at BofA warned her about the $5.00 per usage fee. Not to mention the danger of having too much cash whether on you, in your luggage, or in the hotel room.
That’s crap. This doesn’t affect only travelers, what if I make and Internet purchase in USD from overseas? Now I have to question the origin of any transaction I make?
At least exchange fees have a BS justification. There is ZERO justification, that I know of, for charging a fee based on country of origin.
We don’t need congress to do anything about this. If they try, they will screw it up.
Our daughter did study abroad last summer in Florence. We have several credit card accounts in the family, and I called them all to see if they had foreign transaction fees. One didn’t, and that was the one she took with her. Folks who do a lot of travel should make sure that they carry a card without these fees. Also, if you’re a good customer, banks will waive a fee like that. At least ask — the worst they can do is say no.
I checked on my brokerage account and the card on that is really a debit card and it carries only a 1 percent foreign transaction fee, best one I know. They did warn me to be sure to tell them I was traveling so the fraud department would not freeze the account..
I have had the foreign transaction fee on purchases I made on the internet from companies in Europe, so I guess my American Express Card left home with out me!
One has to believe that after each legislative bill is completed, it goes to the department of obfuscating loopholes. There is no other possible explanation for the number of holes and crevices in every single bill .
I wonder what relationship exists between the number of loopholes and the size of campaign donations.
transaction fees are coming up everywhere, you need to be careful nowadays.
Citibank is now charging a 3% “Foreign Exchange Transaction Fee” on *all* cross-border payments, even if, for example, a US customer buys a product from a US company in dollars, and the US company is using an international payment processing company. Citibank refuses to refund these fees.
To all readers: which credit card companies are not charging this fee? I’m ready to switch immediately!