|by Jason Steele|
Regular readers know that I have a serious grudge against foreign transaction fees. The reasons for my vendetta range from the principled to the personal. First, I don’t like getting ripped off when I travel outside the United States, which I do regularly. Furthermore, I just feel it is wrong. There is no real added cost to accepting credit cards across the border, something that the New York Times pointed out:
… Duncan MacDonald, who was general counsel for Citi’s card business in Europe in North America for part of the 1990s, said he believed that the fees provided a big boost to the issuers’ bottom lines. “My guess is that some major part of it is just pure profit,” he said. He pointed me toward revealing details in Schwartz vs. Visa, one of the many lawsuits that ultimately led banks to disclose these fees more prominently. The trial judge, Ronald M. Sabraw, noted that from Feb. 1, 1996, through Dec. 31, 2000, Visa had $6.9 million in multicurrency conversion costs for American cardholders and $630.1 million in currency conversion and related revenue. Visa and MasterCard “merely act as a clearinghouse, performing arithmetical calculations at insignificant cost,” Judge Sabraw concluded.
In fact, I found out that the very same credit card issuers who tack on foreign transaction fees when our cards are used outside of the United States, add those very same fees to the very same cards that they issue to foreign citizens when they visit the United States! Foreign currency conversions are a trivial cost, yet most companies charge a whopping 3% of all purchases processed outside the United States. Companies have even been caught adding these charges to domestic purchases processed in of shore locations as well as dollar transactions completed outside the United States.
The Tide Is Turning Quickly
In the last three years since I have been blogging here, card issuers have largely retreated from their outrageous fees. Naturally, I take full credit. Amex did raise their fees from 2% to 2.7%, but dropped them altogether on their Platinum cards. Chase, Citi, and BoA also dropped these fees on some of their products targeted at international travelers. Capital One, god bless them, has never charged these fees as far as I know. Clearly, they are not giving up these un-earned profits unless consumers were starting to demand it. Maybe they catch the drift when I call them up to tell them I will be traveling overseas, but never use their card.
The Latest Domino To Fall, Discover
Discover has their loyal following, but they also charge the 2% foreign transaction fee. It is not that the Discover card is widely accepted outside the United States, but they nevertheless wrote to their customers recently announcing that they would no longer have this fee as of November. According to numerous cardholder reports, Discover sent out a letter indicating:
We are pleased to inform you that, effective 11/06/11 we will no longer charge a Foreign Currency Fee on any international purchases made with your Discover® card.
This can only be seen as good news. Discover is accepted anywhere Diner’s Club is, and they also have an affiliate in China, making it a preferred card for people who travel there.
Hopefully, this news is an indication that the last days of the foreign transaction fees are here. As the world becomes a global community, we don’t need our banks levying unjustified surcharges if we dare to cross the border.