The foreign transaction fee nightmare continues — and you could be next

June 4, 2009

I hate it when I’m right about something like this. A few days ago, I warned that the Credit Card Accountability Responsibility and Disclosure Act of 2009 had a gaping loophole that could force us to pay a foreign transaction fee whenever we crossed a border.

Not only is that proving accurate, but the truth is much worse. Now you don’t even have to travel to get dinged by one of these bogus surcharges.

Here’s what happened to Sunil Kadam when he booked a ticket through Expedia.

I live in Boston and I booked my parent’s tickets from Expedia.com from Mumbai to New York on Qatar Airways. When my credit card statement came, I found a foreign transaction fee of $44 which was two percent of ticket price.

When I contacted Citi Card (my credit card company), they said Qatar Air is foreign airline, hence there is foreign transaction fee. Expedia says they give the transaction to Qatar’s US office in Washington, who should process the transaction in United States. Expedia is not doing any transaction (but still charging $14 booking fee).

When I contacted Qatar’s office in D.C., they are saying this not their problem either. Qatar Air’s D.C. office process all payments through their central server. So they are telling me to check with Citi again. I tried to dispute that charge but as per Citi’s “agreement” you can dispute the foreign transaction itself but not the foreign transaction fee.

Do you think I should be paying foreign transaction fee for the transaction I have made in US with a US company (Expedia)?

Of course not.

I asked Expedia what was happening. Here’s what I heard back.

Expedia’s customer service team researched this case, and found that Expedia submitted the round-trip amount ($1,468.80) to Qatar Airlines as a U.S.-based purchase. Qatar Airlines verified that they processed the charge via their central reservation system based in Washington D.C. The customer’s credit card company, Citibank, then charged a foreign transaction fee in line with its cardholder agreement with the customer.

It is Expedia’s assessment that the customer’s credit card company is charging a fee, likely because Qatar Airlines is not a U.S.-based company, per its cardholder agreement. Because the fee was not charged by Expedia.com or Qatar Airlines, neither Expedia nor Qatar Airlines has the authority to reverse this charge.

By this logic, I could get charged a foreign transaction fee by doing business with any non-US company, even if the charge takes place in the United States. If I buy a Sony camcorder or a set of Henckels knives — ding! — there’s two percent!

The intent of the just-signed credit card bill was to stop these ridiculous foreign transaction fees, but vague language left the door open for charging them. (For the record, some concerned citizens tried to warn Rep. Barney Frank about this loophole when the bill was in committee, but to no avail.)

Now the new fees seem to be popping up everywhere.

Kadam has several options. He can complain to the Federal Trade Commission, which has oversight responsibility for credit cards. Technically, Citi may be regulated by the Office of Thrift Supervision. In the short term, a trip to small claims court might get him the $44 back, but I don’t think that’s realistic, since his court costs would almost certainly be higher than $44.

The government needs to clarify what it means by a “foreign exchange fee” — and soon. Otherwise, we’ll all be paying these fees for anything manufactured by a non-US company.

That would be madness.

http://www.twclimited.com Trans World

I am truly shocked.

I just did I quick review of four of my last long haul flights puchased via Virgin Atlantic, Lufthansas, Swiss, and BA”s respective websites. In all three cases, the transaction was charged by the local London offices of these carriers (of course BA.VS would) and no foreign currency fees were applied despite my cc bill being in GBP, and fares being in Euros and Swiss Francs originally- then converted to GBP by the airline in the final transaction online.

I have to confess that here in Europe we have long had cards like Abbey/Santader “Zero” whose largest selling point is to offer customer no foreign transaction or conversion fees. I dont see that kind of card selling as well in the US, but it was so obsubscibed here in the UK that it took 6 months to get one in some cases.

Good for you, Chris for naming and shaming! This is a terrible situation. You can bet that when it comes time for the US IRS to look at the foreign airlines opearations there is some corporation tax due. So clearly these carriers have a US entity.

I would check with Lufthansa or Ethiad and do on online transaction from the US side and see if you get this sort of issue. I sincerely doubt it- but this surprised me.

CAS
http://praguepartmentsonline.com Martin Smith

This ridiculous fee can get very complicated when a hotel in Holland quotes you a fee in US dollars and then when you are there they convert it back to Euros and of course then your credit card company converts it back to dollars and charges a exorbitant percentage for the privilege of over charging you. You see the hotel converts at a rate both ways for their benefit the credit card company does the same then has the nerve to charge you as much as 3% for a foreign transaction. This is usury at its worst and is “fraud” per se. I would be willing to contribute to a fund to file a class action suit against these crooks. If this works then I would go after the VAT charged by the various EU governments that you can’t get back even though you shouldn’t have to pay it.
carver

@Chris

Even if the court costs would be more than $44.00, if the OP prevailed, she would receive the court costs back.
Charles Lichtenwalner

We planned a three-week cruise/land trip in Paris and Normandy and realized that with our current credit card, AAdvantage from Citibank, we would be charged 3% for every Euro transaction. With a week of hotels and dining on our own and miscellaneous shopping, that surcharge could be well over $200.00. Citibank was of no assistance even though the card has been in existence since 1987.

Searching the Internet, we found Capital One which, for people with excellent credit which luckily we are, has cards with no annual fee, a 0% rate for the first year, and NO foreign transaction fee. We signed up over the Internet and were instantly approved for a card.

This is our foreign transaction card. Not getting Frequent Flier miles on American Airlines is a small price to pay for saving hundreds of dollars on transactions.
jayne52

I know it’s Inconvenient, but you can go to the bank, get cash, drive to the airport or city office and actually purchase a ticket with cash. Or try using a travel agent.
Why did we bail out these banks again??
Lianne

Adding “foreign transaction fees” to purchases charged in USD base on location is pure money grubbing.
Miss Liliane

That is why I do business with banks who issue debit & credit cards that do not charge foreign transaction fees. Charles Schwab & Capital One are two good choices for those who travel.

It does seem like things are changing. We went to one Carribean island two years ago where nearly everything was charged in USD, so we used another credit card most of the week that had better rewards. We never saw a foreign transaction fee. The next year, same island, same stores, and all of the sudden we started seeing foreign transaction fees.
http://www.govisithawaii.com Sheila @ GoVisitHawaii

Hi Christopher – I posted this comment on your Tripso post and thought I’d share it in the conversation here:

I’ve found $259 of foreign transaction fees on my credit card statement for booking a cruise to Alaska through a Dallas, Texas based travel agency. I’m not even sure where to start to contest this fee.

Christopher, who is the recipient of my generous $259 “donation”?

I know it’s not the travel agency’s fault, but shouldn’t agencies be alerting clients of these fees? If I had been informed of the fee, I could have made an intelligent decision and paid by check to avoid the fee all together.
Jasper

Doesn’t this violate the card agreement that banks have with VISA, MC etc? Where are our resident lawyers?

BTW: What constitutes a foreign company? Most “foreign” companies operate in “foreign” countries through locally incorporated companies. You don’t buy from Sony Japan, but from Sony USA. Would an Ohio built Toyota be a foreign purchase? How about a KLM-NorthWest ticket?

I foresee a legal jungle of lawsuits. But it’s gonna take at least a few years before the government legislates again, so for that time-period, we’ll be paying again.
Carver

@jayne

Driving all the way to the airport, paying parking charges, not to mention time and hassle, to save a 3%. On a $400 ticket that $12. No thanks

@Sheila

The difficulty is that the travel agencies may not know which cards charge fees. I suspect most travel agencies don’t take checks and probably hate dealing with cash.
Kevin Fields

Absolutely horrible! Yet another good reason for me to keep throwing away those credit card offers.
Mike

Personallly, in addition to contacting the FTC or the OTS I would also contact the state attorney general where you live. With the rise of foreclosures, these large banks are on no one’s good side right now. There might possibly be a law out there that deals with this type of thing in that a transaction made in America and with a company with a US office is not considered a foreign transaction.

To be honest, with so many companies moving call centers and data centers to the middle east almost any transaction could be considered a foreign one if that is where the server resides. However, I seriously doubt any court of law would consider your internet purchase from Best Buy to be a foreign purchase, regardless of where their servers are sored or where the transaction is routed.
Houman

I try to only use my Amex card for foreign transactions, even those in US $. That would be an Amex card issued by American Express only, not one issued by Citibank or BofA. Amex never charges a foreign transaction fee if the charge is in US $, even if the charge was made in a foreign country. And unlike Visa and MC, Amex does not allow merchants to use Dynamic Currency Conversion to convert the foreign amount into US $ at an uncompetitive exchange rate.
James

I just found a $1.19 foreign transaction fee on my Citi AA card, I know it’s not a lot but it’s the principal. The only thing I can think they are charging for is my plane ticket to Peru booked on Delta. I am still in Peru but you bet I am going to contest this fee when I return even though it is minimal, . This is getting ridiculous with the fees, I pay a yearly due for this card and they should not be nickel and dimeing us.
George McRae

I was charged a FTF for a purchase made from the UNIVERSITY OF KANSAS!!!
the credit card processing company offshores its processing and the bank CHASE posted it as a foreign transaction. From the Netherlands. I forwarded my details to Barny Frank and the House committee on Financial Services. And am going to send detaile to my senator. I have been in touch with my congressperson as well. any tome you make a credit card or debit card transaction you could be charged this fee because you have no idea if your transaction is being processed in the US or not. Criminal.
Burnett Moody

When traveling to Copenhagen recently I noticed a very small print notice on the bottom of a menu ( first class restaurant) that said a 5.5% addition will be made to all foreign credit card transactions. I left the restaurant and dined elsewhere. Be aware!
Bill

Way to go Burnett. I hope you told them why you left. I would have done the same. It wouldn’t hurt to tell the Danish tourism people either.

As for the other issues, they have just created a huge mess which is difficult to deal with. Of course the credit card industry has always tried to make money in obscure ways. Someone should try issuing a card with an annual fee and no foreign transaction fee…and see how that goes.
paula

Yup, i just bought a ticket to Ireland from Orbitz for $890 and got hit with a $26.72 foreign transaction fee from my credit card company (bank of america). they said that although i purchased the ticket from Orbitz, the transaction was processed in Ireland by Aer Lingus. i had NO idea that was happening as i paid in US DOLLARS to a US SITE.

orbitz placed the blame on my credit card company and only offered to refund me its $6.99 service fee. bank of america washed its hands from it all and said from their perspective, the charge was made in Dublin. i made the point to orbitz that no-where on their site informed me about the possibility that i COULD be subject to this fee if i flew a foreign airline. it’s all bogus and i have no idea where else to go or who to complain to.
Jen

I just successfully contested a FTF charge of about $75 for a ticket I purchased on British Airways for about $2900. For the record, I booked the ticket on the US site, it left and returned to the US, and I spoke on the phone with a BA USA representative. This was on a Citibank Visa card. The rep on the phone at Citi claimed “there is no way for us to know up front what will be a foreign transaction until we see it come through after the fact.” Because BA’s headquarters or bank or whatever is in London (and therefore the charge says “London” on the statement), the charge applies.

This is COMPLETELY NON TRANSPARENT to the consumer. There’s no way to know ahead of time whether a foreign transaction charge will be applied! Even when booking flights to London on a domestic airline, such as Delta, it sometimes turns out to be a codeshare with Air France or KLM… does that mean that I could purchase a Delta ticket, and then have the foreign transaction fee charged if it turns out the ticket is really with Air France? This is super ridiculous, and yet another reason why I’m not using this card any longer. Yes, I am going to write several letters of complaint.
laura

I was shocked when I discovered that my AA Citi/MasterCard charged a 3% “foreing transaction fee” for a purchase of an ELAL flight ticket NY-Tel Aviv-NY, that I purchased over the website, in the US. The ticket was purchased in dollar currency, the invoice I received from ELAL is in dollar amount ($1423,40) and it clearly states that there will be no additional taxes nor monetary supmenents, so I was confident that would be it (already an expensive ticket, right?) Of course ELAL is not responsible ot this awful charge, but at least they could make us aware that if we purchased a ticket over the website we may be incurring in a 3% “foreign transaction fee” if we use V/MC. (I don’t know about AmEx, someone told me I could have avoided the charged if I used an AmEx card).
There was no way for me to anticipate this transaction fee. It was very clear to me that the transaction was processed in the US (US currency, US invoice, English-language website). It seems that ELAL processes website transactions at their Ben Gurion Airport, Israel, and this is why the credit card considered it to be a “foreign transaction”. Not that I purchased over the website -that doesn’t matter. For the credit card, it is the same as if I was in Israel and I purchased the ticket over a counter there. Funny, ha?
I called the credit card company. I complained and said I would dispute the charge, and the customer service representative screamed to me (Yes, she screamed) No! You cannot dispute this charge!!!!
I will, of course. F…ing credit cards!
john c. flynn

QUITE SIMPLY PUT BARNY FRANK IS A MORON.
http://thisone joe blow

as per the agreement, if the company itself was founded and/or based internationally, then you will receive a charge. it doesn’t matter where the transaction originates, its simply where the company is located… freaking…. morons
http://http/aol.com barbie45

John, I could not agree with you more. Actually your post is being kind to him.
http://horizon.unc.edu James Morrison

Does anyone know the justification for “foreign transaction fees”? How does it cost a credit card company any more money to process a charge from a foreign location in this age of Internet access?
lenarque

I just discover that my credit card now charges me an unbelievable 3% foreign tx fee. I’ve never been charge such a fee before and I use US credit cards to pay euro now and then. I paid for an airline ticket with a non US company. The price was originally tagged in € and I switched for $ currency. 5 days later, bank of america that owns my mbna credit card has added a whopping $68 fee.
As far as I can recall, I haven’t received any updated customer agreement. 2 questions:
1 – why shouldn’t I get automatically an updated customer agreement especially after a major change a credit card corp is acquired by a new one?
2 – how come I can’t get a disclosure agreement on-line / immediatly but only through snail mail ie. 10 business days according to bofa website?
The issue boils down to what is being done to help credit cards holders to make a rational decision about using a credit card (rather than another one)?
Disclosure, schmisclosure
http://www.twitter.com/askmrlee askmrlee

The Visa and MasterCard associations have added fees for foreign transactions (defined here as any transaction with one party outside the US, regardless of currency).

@lenarque. Actually, I bet that your credit card (presumably a Visa or MasterCard issued by a typical “big bank”) has been charging this fee for the last 5+ years or so, but you probably didn’t see the initial disclosure in the terms & conditions. Also, the banks used to bury the fee in the exchange rate used. Since the T&C’s told you that the rate was subject to this fee, it was “properly disclosed”. Now they are detailing the fee as a separate line item. So, the fee has always been there.

Outraged? You should have been for the last few years. Find a card that does not have this fee or at least a low fee. Check out Capital One, Fidelity Rewards Amex (1% fee), JCB (1.1% fee) is available if you live in certain US states, certain PenFed Credit Union cards, the Schwab bank Visa debit card. HSBC Premier also does not charge foreign transaction fees, but you must have very high balances (~$100K+).
Rich C

Just called Capital one and got a card that won’t charge these usurious foreign fees. Then I called Chase(which had charged me $10 on a product purchased on web in British Columbia) and told then I would be cashing my rewards and canceling my card very soon. I had been with them since the 80′s! Maybe if enough people did this, the CC companies would get rid of this fee.
Melissa

If you have recently purchased airline tickets for an international flight with your credit card, you may have been charged a “foreign transaction fee.” Contact Jerome Noll via email at or Melissa Wu via telephone at (914) 517-5076 for free legal assistance in recouping your losses.
James

My wife and I visit our parents in Poland twice a year and this Christmas we are going again. We searched the Internet to get the best price and decided that we would give Orbitz a try. We purchased our tickets and were shocked to find that we were charged $68.28 in foreign transaction fees!! We have ordered tickets from Lot polish airlines before and always had the choice to purchase in dollars or zloty (polish currency). Orbitz had obviously purchased tickets for us in zloty, NOT dollars. Because of this, we were charged these fees. We called Orbitz and assumed that it was a simple mistake on their part and it would be a quick fix. After spending an hour on a conference call with them and my bank, Orbitz REFUSED to correct the mistake and said that they were not responsible for the exchange fees incurred by our bank even though THEY advertised the price in dollars!!! We called LOT polish airlines and they said that what Orbitz did is nothing short of unacceptable!! Lot advised us to get a written explanation from Orbitz as to why they won’t fix the transaction so that Lot may follow up with Orbitz. LOT is not happy and to their credit will help us get satisfaction. In the end, it was Bank of Anerica that reversed the charges at their own expense to keep me a happy customer!! Kudos to Bank if America!!! Orbitz should be avoided at all costs!!!!!
Nags

try https://appsec.helpwithmybank.gov/olcc_form/intro.aspx?code=n for complaints - i just did file a complaint on BoA on this!
Sam

I recently had the same issue with BA and Citibank. I was charged 201$ as a foreign transaction fee. I called citibank and as usual the customer rep said he could not do anything about it and in fact started lecturing me about how I should read the customer agreement etc … In fact he mentioned that 1% is charged by Mastercard and 2% by Citibank. When I fired about Citibank doing with with 2% i cant believe he said citibank is making money off me…
I asked him to transfer me to the manager in charge and after listening to me she agreed to credit me the money …
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