Credit-Card Surcharges

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LEFT: Never mind the cute kid and dog on the card--what about the fees?

Watch for the double whammy

Let's say you've bought an item in Paris and charged it to your Visa or MasterCard. You take it back to the hotel, find that it doesn't fit or doesn't work, and return it to the store.

The shopkeeper now issues a credit in euros. Visa or MasterCard converts the credit into dollars (taking a modest commission) and passes the dollar amount on to your credit-card company. Your credit-card company may then impose a surcharge on the credit. In other words, you're gouged twice: first with the 2% to 5% surcharge on the original purchase, and again with a 2% to 5% surcharge on the store's refund.

A new culprit: the "cross-border transaction fee"

Your credit-card company may be gouging you with a new surcharge wrinkle: the "cross-border transaction fee," which applies to foreign transactions in your own currency.

For example, if you're an American and you charge US $1,000 in onboard charges and purchases aboard a cruise ship, the credit-card company may pad the bill by another $20-30 just because the ship was outside of U.S. waters.

Canadians may take an extra hit

D.G. Smitty, a reader from Canada, e-mailed us a while back to report:

First off, I have been told from two separate sources that Canadian credit cards used for foreign (non North-American) currency transactions have the foreign purchase translated to American dollars at the prevailing wholesale exchange rate for the day of the transaction. Presumably this is done at the US Visa / MasterCard clearing house. The resulting amount is then converted from US dollars to Canadian dollars, again at the prevailing wholesale rate. Since the exchange rates for currency transactions always include a bias towards the bank doing the buying and selling, this two-step conversion already means that Canadian cardholders are at a disadvantage compared to our American bretheren, having gone through two currency conversions before the bill arrives.

How to avoid surcharges

• Don't use your Visa or MasterCard overseas until you've questioned your card's issuer about fees added to foreign-currency or "cross-border" transactions. (Check before each trip, because policies may change on short notice.)

• If your credit-card company is one of the offenders, look for an issuer that doesn't have surcharges. In the United States, try Capital One. When we talked to a Capital One U.S. representative late in 2008, we were told that Capital One took pride in not levying such fees and had no plans to add them. (Capital One's Canadian and British subsidiaries apparently do impose surcharges.)

• If you have an American Express account, use your card only when absolutely necessary.

• Note also that exchange rates are usually calculated when a transaction is posted to your account, not when you made the purchase, so a delay in posting of a charge could work for or against you, depending on which way the market is headed. (Most of the time, the day-to-day or hour-to-hour differences aren't significant.)

Also beware of hidden ATM fees

• In addition to surcharges on credit-card transactions, some banks are now charging hidden fees of several percentage points on foreign-currency ATM transactions. So, if you thought your ATM card was a safe haven from credit-card surcharges, think again--and see our ATM "Conversion Fees" article before withdrawing cash abroad.

Another ripoff: Merchant fees

• Some merchants are now charging foreign customers in their home currencies. (We've had this happen to us.) For example, a hotel in Germany might bill an American customer in U.S. dollars instead of euros and earn a 2% to 5% commission for this unrequested "convenience." To avoid such fees, insist on being billed in local currency. (The Wall Street Journal reports that Visa requires merchants to let customers opt out of conversion, and American Express waives its conversion fee if the merchant has converted the charge to a foreign currency.)

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