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Foreign exchange confusion: “The merchants lied”

January 20, 2008

It is one of the great mysteries of international travel: What kind of exchange rate did I get for my credit card transaction? Despite a recent court settlement — or maybe because of the settlement — travelers seem to be more confused than ever about what their cards are charging when they cross the border. Reader Holly Henson is among them.

Here’s what happened to her on a recent trip to London:

The merchants would run my credit card and present a slip to sign indicating my purchase in British Pounds.

The receipt they gave to me however stated that I “agreed to be charged in the currency of my credit card” (dollars). So essentially, the European banks have done an end run around the use of credit cards — charging their own “exchange rate” inclusive of change fees.

I was really irritated. And frankly, it ruined most of the trip.

Henson contacted two of the merchants while in London for clarification.

I was told the charge would be in pounds, converted by my bank at their exchange fee, which including a Visa fee. But still, I suspect it would have been less than what merchants were charging.

In the end, the merchants lied. I had numerous dollar charges on my card statement. When confronted, most of the sales cashiers were clueless — they really believed that they were charging pounds. I asked why the receipt would say different. One woman actually told me it “didn’t mean anything.”

Have you heard of this practice? any suggestions for combating it?

I put the question to Luke Ronsse from the Travelfinances blog. Here’s his take:

It sounds like your reader is describing a “dynamic currency conversion” (DCC) transaction.

It also sounds like your reader inadvertently signed the slip agreeing to have the purchase converted to USD at the point of sale. Both Visa and Mastercard require merchants to get the customers approval before doing a DCC transaction. However, since merchants profit from DCC, they don’t necessarily have a vested interest in full disclosure.

This can create confusing and frustrating experiences for infrequent international travelers. While some merchants and DCC providers tout the advantages of DCC, the ‘service’ can lead to compounded fees costly transactions for international credit card purchases.

Incidentally, Ronsse has written about dynamic currency conversion issues on a few occasions. There’s even a defense of these fees, in case you’re interested.

You have several options for getting around the fees. Obviously, a cash transaction would incur no fees. So an ATM might have been a good option. If you’re planning to visit Europe often, you could also open an overseas account in euros or pounds. Finally, as Ronsse notes, you can decline the DCC option.

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14 comments

  • Charlie

    > “Finally, as Ronsse notes, you can decline the DCC option.”

    No you can’t. At least, not in my experience. Every merchant I encountered in Barcelona used DCC, and when I objected, every single one said that there was no way to make the charge in Euros. I suppose some of them might have been lying, but most of them clearly had no idea how to NOT use DCC.

    I haven’t had this problem in other European countries, just Spain.

  • Drew

    I routinely use both my corporate card (MasterCard) and personal cards (AmEx and Visa) in Europe (Britain, France, Germany, Czech Republic, Austria), and I’ve NEVER had this issue… My card is always charged in Euros (or Pounds or Czech Koruna), and we get the “minimal” transaction fee charged by the credit card company…. It works out pretty well, usually…

    I’ve never been presented with a charge slip that says that I’m going to be “charged in the currency of my credit card”… it’s always been the standard “cardholder agrees to pay”… Maybe it’s just in touristy places?

  • Joe F.

    You ARE the customer. YOU sign the slip. If you ask if its DCC and they say yes, you say no. You are not REQUIRED to sign for DCC under either the card holder agreement or the merchant agreement. If it is something optional, like a tourist purchase – walk away. Just say no. The merchant loses – not you. There is always another trinket in another city. If they lose enough sales from Americans, they stop using DCC. If you are in a place that has already provided you a service, your extra cost will be 3-4%, the cost of the double conversions. Simply ask for a 4$ discount. Explain to the hotel, restaurant or similar. Ask to speak to a manager and politely inform them that their practice is increasing your cost by 4% and you would like it if they simply charged you in their local currency. If the refuse, then explain that you should be paying more for their choice, and if they had posted their rules you would not have used their establishment. Then close your mouth. Create the pregnant pause – do NOT fill the silence. See if they offer the obvious – if not – then ask for it. If they refuse again take the name, date and time down, note the refusal to charge in local currency and contact your own card issuer with the dispute. You CAN argue over the violation of the merchant agreement.

    Have a specific number, 4% of the bill in mind, and dispute it. Whether your issuer honors your request is anybody’s guess, but they CAN charge back less than the entire amount of the charge – and I’d be willing to be that 99% of merchants would not make the effort over $12 on a $300 bill. . . thats only 8 euros.

    This is likely a scam by the merchants local banks to generate more fees – and profit over a currency conversion twice . . .

  • Jasper

    Being European, I have never noticed this practice. I have run around Europe using both my American and my Dutch ccs, before and after the introduction of the euro. It surprises me most that this practise seems to be post-euro, because it would have been way more profitable pre-euro. Furthermore, the dollar is so weak compared to the euro these days, I can’t imagine anybody in Europe would want dollars right now.

    American news doesn’t tell you, but the dollar hits a new low every couple of days. American news also doesn’t tell you that every reduction of interest “to save/help/stabilize the economy” plunges the value of the dollar to new lows.

    Now, I do know that in tourist centers, merchants anywhere around the world will do anything to make the tourists loose as much money as possible (ever been in an theme-park in FL, or on Manhattan?). So, if they can come up with fake charges, they will. And they’ll be persistant that ‘it’s local law/habit/taxes’.

    Personally, I simply refuse to pay in other than local currency, simply it’s not legal tender. Nobody can refuse to be paid in their local currency, even though in some places (Israel, Mexico) dollars are more wanted than local currency.

    Also, realize that Europeans use credit cards way less than in America. Cash is prefered, and most Europeans just have a debit card that works throughout the world for larger purchases. European merchants dislike the charges that crecit card companies “force” upon them. Insisting on seeing the manager and not just dealing with the clerk at hand, while having your legal documents at hand will only make you look more like an arrogant /dumb… American. And that’s not a good bargaining position. Most managers will back up their clerk blindly anyway.

  • Joe F.

    The poor dumb American line is not the best way to get poor dumb Americans to visit.

    Lets see how Europe does this summer without American tourists. A declining economy and $1.50 to buy a Euro and over $2 to the pound will keep Americans home in droves. I guess we’ll get to see how many European merchants miss American dollars – which their bank converts into Euros anyway. The point of this article is that we WANT to be charged in Euros – not have the conversion done to dollars and then charged in euros and then the conversion done BACK to dollars by our American bank. THAT is the complaint – we do NOT want to give you dollars – we WANT to pay you in Euros.

    I guess it is ‘arrogant’ to not ask to be ripped off. I guess you morally and more socially advanced Europeans just accept thievery and deceit in your travels and assume it is just part of the landscape. Because that is the message I hear. Jasper, there lots of ugly American stories out there just like there are lots of dump European jokes – as in how many Dutchmen did it take to defend the low countries from May 10 til May 14, 1940? No one knows because the armies surrendered once Rotterdam was bombed by the Luftwaffe.

    I agree 100% that it is likely we will just characterized as the ugly American if we ask not to be ripped off. I also agree that most manager will support their clerks when an American asks to be treated fairly. But what Europeans think of me does not pay my bills. Just keep thinking how important you are when the Russians shut off the natural gas when the Chinese end up offering them more money for it.

    I agree that interest rate cuts make no sense given the larger economy.

    However, the dollar was strong years ago, and it will be strong again. There is a natural cycle to markets, and right now the dollar is weak. The last time this happened was in the 1980s = and look what happened in the late 80′s and early 90′s = the Euro was UNDER a $1 and the Pound had dropped to a $1.3 – I know, I was italy and France whn that happened.

    Americans did not make fun of your currencies, nor did we lord the fact that the dollar was strong over you. In fact, we WANTED a weak dollar to make American exports less expensive. Airbus is going to go broke because of the weak dollar. Lets see what happens to the European economy when the Americans do not come this summer.

  • Jasper

    @ Joe F: I am not trying to offend you, I live in the US, and like the place. I wouldn’t be here if I didn’t.

    However, I am trying to give you the perspective of the European that you are dealing with, and give you some insight on how to be successful with a complaint over there. Europeans and Americans tend to think that ‘as westerners’ there are few cultural differences. It is not the case. My motto is: Cultural differences are usually larger than they appear. Hence, if you want to get something done, you might want to pay attention to local culture. Americans don’t like topless boobies on their beaches, Europeans don’t like being asked for their manager. It is simply not gonna help you.

    I’ll leave the further macro-economic discussion for what it is. Don’t think this is the place for it.

    One final thing: The French were at some point asked what they thought of O’Reilly’s ‘Boycot France’ campaign. Their answer: ‘Iet iez zeir loss ief zey don’t want our cheese and wine. Wie will bie happy to drienk iet ourselves.’

  • Joe F.

    Culture is everything. Absolutely true.

  • Jonathan

    No, you can’t always “decline the DCC”. In fact, I once stood my ground, and was almost arrested. At the constable’s insistence, I signed. I did, however, call Capital One and object to the extra charges, which Capital One immediately removed. Cap One doesn’t charge a fee for conversion, and they usually advise their consumers to make sure the card is charged in local currency.

  • Jesse

    @ Jasper: Who said Americans don’t like topless boobies on our beaches?

    This discussion is what it is, I would instead focus on working with the credit card before I go abroad to get this work started…

    As far as getting people to change their cultures, well, that’s very hard, so forgetaboutit…try not to get into trouble and use the tools which cards allow you to use.

  • Joe F.

    Interesting. America, with its horrible dollar and misanthropic society, has a little fear of recession and the European and Asian markets go into the tank. Funny, isn’t it, how our little worthless nation and nasty little culture get a cold and the rest of the world gets put on life support.

    Just remember one thing, for every stock out there ‘selling off,’ there is someone BUYING it at that price. I personally sold about $50k in stock and have another $50k looking for a home when I see the markets as bottoming out. You cannot “buy low and sell high” if you never buy low . . .or sell high.

    It seems to me that you can ALWAYS ask for the DCC to be removed. There is no harm in asking. Tell you what culture people, Americans ought to simply ask for 10% lower price on their trinkets and charged items, then, they do not have to worry about the DCC. Or is bargaining a lost European art as well?

    You start out in China at 25-30% of the asking price and never pay more than half. Sometimes for the right item, you can get it for 30% if you are polite and enjoy the bargaining relationship. China is the PERFECT market, there are dozens of people selling exactly the same stuff in the same place. And the culture supports bargaining in EVERY shop except the government tourist shops, like jewelry and cloisonnes, etc – but – to get back on track, they charge in Yuan.

    Hey, Jonathan, you can ALWAYS decline the DCC, it’s called walk away from the purchase. Whatever it is, you can say no. Obviously, paying for a hotel room or meal is a different story, but whatever happened to saying no? Whatever it is you are buying, if you do not buy it, then you send a double message, you are an ahole American who refuses to get ripped off by ‘culture,’ and are saying ‘No; to rampant consumerism.

    If the merchant and their culture are offended by “I’m sorry, I cannot buy this item because you will not charge me in your local currency the negotiated price,” how is that rude? Does the merchant insist on converting the price from Euros to dollars and then back to Euros when you pay cash? Then why do they do it that way when they process a credit card? Culture in this case is really a buzz word for merchant ignorance. Merchants learn very fast when sales and money are on the line. If just a few sales every month walk out the door over the issue, the ‘culture’ will change on a dime.

    As for the French keeping their wine and cheese. eet iz very guude for them to do so. Californeea and Australia have much better wines and zee italians better cheese.

  • Gianluca

    Guys, it’s also the other way round. It also happens to Europeans in the US, suddenly we are being asked to pay in Euros, and this has been going on at least since July 2007

  • Bill

    It is good to carry a certain amount of cash so if the credit card environment is not good, one can pay in local currency. I even do this at home because there are some places I do not feel comfortable using a credit card.

    Visa and Mastercard should outlaw this practice. They are not doing themselves any good by allowing it.

  • Bill

    My wife ran into the DCC option in the UK. I advised her to always decline it, which she did. The merchants didn’t give a problem with the choice. If they had, the purchase would not have been made.

  • Houman

    Best thing to do is use an Amex card overseas. Unlike Visa and Mastercard, Amex does not allow DCC, so there’s no arguying with the merchants…

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