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| The Basics | The hidden cost of using credit cards abroad
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Credit card companies and banks often help themselves to your money when you charge purchases in other countries. Here's how to fight them.
By Bankrate.com
Are you being overcharged for purchases made overseas?
Your credit card company is making a killing off the money you spend on your foreign vacation, and you might not even know it.
This extra profit is called a "foreign currency conversion fee," and it means you could be paying up to 3% extra when you make an overseas purchase with a credit card.
Of that, 1% goes to the Visa or MasterCard networks, which charge a 1% fee for converting your foreign-currency purchase into American dollars.
A fee by any name
On April 1, Visa replaced its 1% currency-conversion charge with a 1% "transaction fee." MasterCard plans to start charging the same transaction fee starting Oct. 1, replacing its current 1% currency-conversion charge.
No matter what you call it, it's a good deal. Changing your money in almost any other manner will probably cost a lot more.
But many credit card issuers and banks are cashing in by adding up to a 2% charge on top of that 1% -- without doing a thing to earn it.
"Banks have been making a profit off their customers for a long time, while providing no service," says Linda Sherry, of Consumer Action in Washington, D.C. "Visa and MasterCard are doing all the work; it's simply pure profit for banks." Ed Perkins, syndicated travel columnist and author of "Business Travel When It's Your Money," agrees.
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Gouging?
"People who travel to foreign countries are outraged by this charge. It's pure gouging that credit card companies know they can get away with," he says.
Bankrate contacted four credit card issuers -- Bank of America, MBNA, Citibank and Chase -- to get an explanation for the additional charge. All refused to explain the reason for the charges.
Few banks actually list currency-conversion fees on credit card bills. Most banks add the conversion fees into the transaction prices listed on customer bills -- never actually showing customers the rates they charge.
The charge varies from card to card, but major credit card issuers such as Citibank, Bank of America, J.P. Morgan Chase and MBNA charge 2% on overseas purchases. Add that to the 1% Visa and MasterCard charge for the actual conversion and you will pay an additional $3 for every $100 you spend.
So that $300 pair of shoes you bought in Milan, Italy, will show up on your statement as $309 because Visa or MasterCard got its 1% cut, charging you $3, while your credit card issuer added its 2% by tacking on $6.
That failure to disclose is starting to change due to recent lawsuits brought by consumers who say that their credit card company failed to adequately disclose currency-conversion fees on statements. Some credit card companies have now issued statements identifying the currency-conversion fee and telling how much their cardholders will be charged.
"I think the breakout of the fee could have an impact on the market," Sherry says. "Consumer outcry could cause some banks to lower their fee or do away with it."
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