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Banks, airlines deserve no credit for card tricks

November 2, 2009

cardkeysOn second thought, maybe you should leave home without it.

For years, I’ve been telling travelers to pay with plastic and so have my buddies in the vacation punditry business.

Credit cards protect you from unscrupulous travel agents and tour operators. They hold companies accountable for substandard cruises, flights and hotel rooms. Plus, you can rack up more frequent-flier miles than you’ll ever be able to spend.

But what if the very payment system everyone swears by was quietly helping itself to your money, a few bucks at a time, when you travel? What if companies were quietly tacking new fees onto your bill when you were away?


No need to imagine. Let me introduce you to two fast-growing credit card surcharges: the foreign transaction fee and the airline ticket convenience fee.

The foreign transaction fee charges a flat rate — usually 2 or 3 percent — of any purchase that takes place with a non-U.S. company, regardless of your location or currency. In other words, you can buy a trip right here in the U. S. of A., pay in greenbacks and still get smacked with a foreign transaction fee.

Priceless.

For example, I heard from a reader a few weeks ago who booked her honeymoon in Canada through a U.S. travel agency. She paid in American dollars, but when she returned from her vacation, she found a surprise $310 foreign transaction fee on her credit card bill. Turns out she’d paid a Canadian company through her agent, incurring the surcharge.

To her, the fee represented nothing less than a money grab. Her bank did nothing to earn it and didn’t even bother to warn her before she made the purchase.

Remarkably, this case was easily solved. The newlyweds contacted their bank, and it promptly refunded its share of the fee.

I’ve seen that happen more than a few times lately. Many banks and credit card companies are rolling over when confronted with questions about these surcharges, which suggests that they know the fees are both exorbitant and inexcusable.

They should really know better. A few years ago, angry customers filed a class-action lawsuit against Visa, MasterCard, their member banks and Diners Club, claiming that they’d conspired to set and conceal a 1 to 3 percent currency conversion fee. That fee applied only to transactions where dollars had to be converted. The case was settled.

I’m at a loss to explain why, after the passage of a credit card reform bill earlier this year and with the prospect of tighter government regulation looming, banks and credit card companies would make the same mistake again — unless, of course, they’ve made all the right campaign donations and are confident that they can get away with this.

Unsurprisingly, my friends in the airline business also see an opportunity here. Two discount air carriers, Spirit Airlines and Allegiant Air, now charge fees to customers who pay by credit or debit card. Spirit adds a $4.90 passenger usage fee for bookings not made in person at its airport locations. And Allegiant applies a $14 surcharge to tickets booked through its Web site but waives this “convenience” fee if you buy in person at one of its ticket offices. Both are de-facto credit card fees.

There’s more to come. Forrester Research analyst Henry Harteveldt believes the airline industry can’t wait to embrace convenience fees. He notes that the Computerized Airline Sales and Marketing Association, a trade group for airline marketing professionals, discussed the idea at a recent conference.

“There are three airlines that might take the lead on this,” he told me. One is United, which is asking some travel agents to handle ticket purchases through their own credit card merchant accounts. Harteveldt and others believe this could lead the agents or airlines to start charging convenience fees to cover their own account expenses. “The other is American, which is tightly focused on finances and cost reduction, and US Airways, which acts like Spirit in almost every way possible.”

Steering clear of this surcharge isn’t as easy as protesting a foreign transaction fee. The extras are disclosed as part of the ticket price, and when they aren’t, the U.S. Department of Transportation can punish the airline, as it did this fall when it hit Spirit with a record $375,000 fine. These fees have been rare in the travel industry until now, but the few times I’ve dealt with them, the company has stubbornly refused to remove them.

Airline convenience fees make about as much sense as foreign transaction fees, which is to say, none. Does it really cost $14 to process a ticket transaction on a credit card? Should that cost be broken out from the base fare and only presented at the last minute, when you’ve already made a booking decision?

Those aren’t rhetorical questions. But you already know the answers.

If these fees are allowed to take root, they’ll be impossible to exterminate. Something tells me that market forces alone won’t kill them, and neither will the lone protests of a consumer columnist.

I suspect only government regulation can prevent these card tricks from continuing.

(Photo: Fosforix/Flickr Creative Commons)

Christopher Elliott is the author of Scammed: How to Save Your Money and Find Better Service in a World of Schemes, Swindles, and Shady Deals. Critics have called it “eye-opening” and “inspiring” — it’ll “grab your attention and won’t let go.” Order your copy now on Amazon, Barnes & Noble or iTunes.

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21 comments

  • Thomas Brenneman

    Sorry Chris, but the case is still in the courts. Please see below.

    “The Court has entered a Memorandum and Order, dated October 22, 2009, granting final approval of the settlement. Please visit the “Documents” section on this site to obtain a copy of this Memorandum and Order. The issuance of refund checks for valid, timely claims will not commence until after the entry of a final judgment concerning the final approval of the settlement, any potential appeals are resolved, and the Settlement Administrator has validated the claims.”

  • Bill

    I used to use a credit card for pretty much everything when I travel. Now, I use it only for the necessities – and when I do, I try to use a card that doesn’t charge these fees. There is not much that can be done when an entire industry decides to add fees. They have turned a pleasant experience into an unpleasant one.

  • Cynthia

    This can potentially present another problem in that paying for an airline ticket in cash at the airport is one of the factors that trigger increased scrutiny by TSA, as that is one factor indicating the party *might* be a potential terrorist.

    It is insane!

  • Phil

    I understand that American Express converts all foreign exchange transactions to USD no matter where the purchase is made except in Canada since it is a Canadian card, and then it is converted from US currency into the foreign currency of that banks credit card. A double whammy. Now I only use my AMEX when I am purchasing in the USA or Canada and my Canadian Visa and Mastercard when I am outside the US or Canada as their conversion goes from the foreign currency to Canadian currency.

  • http://blog.mybeautifuladventures.com Andi

    Thanks for the headsup!

  • Ian

    I hold US and Australian credit cards and when I travel overseas, where the length of the trip justifies it, I now wire transfer funds to my Australian card because my Australian bank seems to acknowledge that sometimes I like to do things in other than USD. There is still a transaction fee, but its miniscule compared to my US card. And, unlike my supposedly ‘global’ US bank, my Australian bank lets me make unlimited cash withdrawals at partner bank ATMs in foreign countries without whacking me with a penalty. It is well worth the bother of doing a wire transfer.

  • Eric Smith

    Cynthia. The way I read this, those two airlines don’t require you to pay cash, you’re only required to book the ticket in person. Which makes even less sense, when you consider that processing a credit card transaction costs the same amount whether you’re online or standing at the counter.

    This is still a pretty snakey ploy since most people will pay the fee rather than drive a substantial distance to the airport. That said, I’m sure Spirit would love for you to pay cash since it eliminates one possible recourse for their customers if the airline tries to screw them. How many cash customers do you think will get a refund for a cancelled flight?

  • Ames

    The merchant cannot charge the true cost of the credit card transaction – a percentage of the final invoice – because the credit card agreement forbids it. So the merchant is wiggling its way around the regulations with a flat fee and gambling that few people will make the extra trip to the airport to buy tickets. The fee is low enough to be a better value than going to the airport but high enough to anger us. And if the passenger does go to the airport and pay by cash, there is the side benefit that the passenger cannot protest any problems by protesting the credit card charges. Likewise, no extra costs can be assessed either. Do the airlines take checks? Or PayPal??

    The airlines might have picked this maneuver up from TIckettron – take a look a the convenience and other fees for concert tickets!

  • http://www.Travel-Writers-Exchange.com Travel-Writers-Exchange.com

    Good point about having foreign credit cards. It will help relieve the pressure of added fees. Good point about doing a wire transfer. It will behoove travelers to READ their credit card statements and booklet that accompanies their credit cards. Travelers will be rethinking the way they travel. Sometimes carrying a lot of cash is not a good idea, but more and more travelers will probably carry more than they used to in the past.

  • Bela Fleck

    Ain’t that the truth. I just got back from a cruise to Mexico and for the first time, I paid cash for nearly everything. Even though I usually have the cash waiting to pay the bill off afterward, it was nice to come home with no bills to worry about at all.

  • Thomas Brenneman

    Capitol One=No exchange fee

  • KF

    I’ve bought tickets with my Amex on Air New Zealand and not had a transaction fee. Usually when I travel though I take a Visa from my local credit union since they charge a 1% fee. It is a toss-up sometimes between carrying cash and using a credit card since I don’t like carrying large amounts of money and exchanges can be problematic (I’ve also found fewer and fewer places that will take traveler’s checks).

    My advice is to still use your credit card for the big transactions – like hotels that you may need to dispute and pay cash when you can. Bring enough foreign currency to cover your first day or two – ATMs and exchange places in the airport offer the worst rates and you can usually get foreign currency at your local bank plus check what they will charge you for a foreign ATM fee (some can actually be reasonable). Also let them know it will be you traveling so your ATM or credit card isn’t declined. Do your homework if you have to exchange money – in some countries like Japan, exchanges are heavily regulated so you get the same rate wherever you go.

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  • Lianne

    To add to what KF says, check and see if your bank has a partner bank in the country you’re traveling too for ATM withdrawals. I use Bank of America and when I was in China 2 weeks ago I used their partner bank, China Construction for withdrawals. The exchange rate was extremely reasonable and there were no foreign ATM fees since the banks have an agreement.

  • Ahmei

    Also keep an eye out on PayPal transactions…banks like to sneak in fees where you think you are paying in local currency only to find out afterward that you weren’t. Banks are deflecting to PayPal, PayPal are deflecting to the banks…not fun!

  • EllaJo08

    My understanding is that it costs the company 1-3% of every transaction to run a credit card. So if you’re buying a ticket for $300, then $9 goes out of the travel company’s pocket and into the credit card company’s pocket. So while it makes sense that they would want to recoup this money, as someone mentioned before, it is illegal (per the agreement with the credit card company) to charge the customer for this fee. Therein lies my anger.I don’t mind they want to recoup the money. I do mind they want to do it illegally and call it something else.

  • Noah

    “it is illegal (per the agreement with the credit card company) to charge the customer for this fee. Therein lies my anger.I don’t mind they want to recoup the money. I do mind they want to do it illegally and call it something else.”

    Even assuming that the airline’s deal with the credit card company does not allow it to charge the customer for the for this fee, there is nothing “illegal” about it doing so. It may be a breach of its contract with the credit card company, but only the credit card company has the right to enforce that contract.

  • Ronda

    I still feel safer with using credit cards on online purchases and travel. (provided it’ll back you up in a dispute) Its better to be hit with a couple hundred dollers in fees then potentially lose a couple thousand dollers in a trip gone wrong.

  • Chad

    Do you seriously think that after all this time of credit cards being ubiquitous that every company accustomed to receiving credit cards hasn’t already incorporated that cost into their pricing?

    Seriously. If the ticket was 300 yesterday, and it cost the company 9 dollars, then that ticket REALLY cost 291. The cost has already, long in the past, been transfered onto you, the customer.

    If anything, these companies have an incentive to get you to pay in cash, since they don’t lower their prices when you do. When you buy the 300 dollars ticket in cash, the airline makes an extra 9 dollars (assuming 3 percent)

    These surcharges only make sense if the cost of them processing your purchase with a credit card has gone up by the amount of the surcharge. I promise it has not.

    This is either a money grab (keep the price the same, add a surcharge for something already incorporated into the price of the ticket), or a way for the companies to appear, in the future, to have a lower rate, for example:

    You are looking for a ticket on a travel site. You see a ticket from American Airlines for 300 dollars, and you also see a ticket from US Airways for 280 dollars, which do you buy?

    But wait! After choosing US airways, in the final window you see that there are surcharges for 30 dollars! Ha Ha, you chose the more expensive ticket!

  • http://www.foreignmoney.com Noe Rosales

    I am the manager at a foreign exchange company in Beverly Hills, and for years we have been informing the public of the high fees that the credit card companies have been charging. While taking your entire travel funds in cash is not reasonable, what else could one do? Take a combination of both, but leave your travelers checks where they belong, with your bank or American Express. Traveler’s checks are a thing of the past. That is why both American Express and Master Card discontinued the issuance of Australian and Yen travelers checks, no body wants them anymore.

    As KF has said, “use your credit card for larger transactions”. But when it comes to taking your travel funds, I would suggest (not just because I work in a foreign exchange place) that you buy your foreign currency before you go. Keep this in mind when you travel. The dollar is no longer the strong currency it was fifteen or twenty years ago. Less and less countries are accepting the greenback for payment. As volatile as it was, some “Foreign Exchange” kiosks in The Netherlands stopped exchanging USD for EURO, this was cash for cash.

    While you are still in the States, you will have the option of shopping around for the best rate of exchange. Once you have arrived at your destination, your choices will be narrowed down to two:
    1. Spend part of your vacation negotiating for a better rate
    2. Exchanging at the first place you find at whatever rate they are offering.

    Here are a couple of places for you to get started:
    http://www.ezforex – http://www.foreignmoney.com – http://www.travelex.com
    All three work the same way, but we offer discounted rates of exchange when a client can pay by check. Yes, we accept credit cards, but as you may have guessed it, the rate of exchange is much higher due to “Merchant Fees”.

  • MeanMeosh

    Beware of another nice little trick up the credit card companies’ sleeves. When I was in Ireland last week, every merchant I shopped with asked if I’d like for the transaction to be run through in EUR or USD. Turns out, there’s a new “service” that will automatically convert your foreign purchase to USD at the point of sale, unless you opt out. The lovely deal? They give you a crappy exchange rate (they were quoting about 1.57:1 instead of the spot rate of around 1.49:1), and I’m willing to bet your bank will still whack you with the 3% foreign transaction fee since it’s coming from a foreign merchant. Watch out for this when shopping abroad. Get a card with either a low or no transaction fee, and insist that the transaction be run through in local currency.

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