I’m almost never accused of being too neutral, but when I covered a type of foreign currency exchange that affects international travelers recently, that’s exactly what happened.
I was writing about a little trick called a dynamic currency conversion (DCC), which works something like this: If you’re paying by credit card overseas, a merchant will sometimes ask if you want to make the purchase in dollars, “for your convenience.” If you agree, your money is converted from the native currency into greenbacks and sent to your credit card, but at an awful exchange rate. Bizarrely, you may still have to pay your credit card a fee for a foreign transaction — so you basically convert the money twice.
Colleagues excoriated me for failing to call DCC what it was: a scam.
I try not to throw around the “s” word too much. In my line of work, everyone expects it. But then I heard from Scott Niskach, a sales manager for a Salt Lake City-based computer company and a world traveler.
“Love your balanced approach,” he said.
He attached two hotel receipts for recent stays in India, both at major hotels run by western companies.
“Both times, DCC was declined and clearly written on the receipts,” he says.
But that didn’t seem to matter. The hotels converted his bill anyway.
Lies, lies everywhere
How much money did the hotels make by using DCC?
At one property, his bill came to $663 with dynamic conversion. Using his credit card, he would have only paid only $630. At the other, his dynamically-converted bill came to $206. It should have been $194.
“Between the two hotel stays I saved $44 by refusing the DCC,” he says.
Only, he didn’t, at least not initially. Niskach had to ask his credit card to fix the exchange rate, and he prevailed in the dispute because he had photos of the receipt, which clearly stated he’d been charged in rupees.
“My guess is a lot of travelers are sucked into the DCC without ever knowing – some hotels ask, others just impose the charge and say it’s being helpful to you, the traveler,” he says. “I doubt things will change anytime soon, as this is an easy profit for hotels.”
There’s so much lyin’ going on here, it’s easy to lose track. Merchants are supposed to ask you if you want to do a DCC, and the only reason you might want to is that you’re curious how much your hotel bill will cost in dollars. (If you are, may I suggest a calculator?)
But Niskach apparently wasn’t even offered a choice between DCC and rupees; he had to tell the hotel clerk that he wanted to pay in the Indian currency. Although it agreed to do so and gave him a receipt to that effect, the hotel’s accounting systems did a DCC anyway in the back office, he says.
Pulling back the curtain on DCC
Here’s what’s going on behind the scenes: Another company is handling the transaction and sharing a portion of it with the merchant. “Best of all, [we'll] rebate a share of the conversion fee to you, generating additional revenue for your business,” one company claims. “The more international business you do, the more you improve your bottom line.”
But is that a scam?
It is dishonest, and a violation of your credit card’s merchant agreement, if you aren’t asked if you want DCC before you pay. But it is — let’s call it what it is now — a scam if they convert your purchase anyway and force you to take up the matter with your credit card company.
The moral of this story? Always ask to pay in the native currency and keep receipts for everything you buy. You may need them later.