Investigation of Foreign Transaction Fees on Payments at Foreign Websites

Do you shop on foreign websites? Has your debit or credit card been charged a foreign (or international) transaction fee on a purchase you made there?

We’re investigating how foreign transaction fees are applied.

Originally, foreign transaction fees were applied only to purchases you made with your card in a foreign country. In earlier days, this situation was pretty clear-cut: You were only charged these fees if you actually were in the foreign country. Now the Internet has made it possible to buy from foreign countries while we’re still at home. Is a foreign transaction fee appropriate on these purchases, or does it violate the rules?

Why Do They Exist?

When you make a transaction in a foreign country, the payment card company must make pay the merchant in the currency of that country. For example, a transaction in France must be paid in francs; a transaction in Japan must be paid in yen; and a transaction in Canada must be paid in Canadian dollars.

To complete your transaction, then, an American card company therefore has to exchange American dollars for the currency needed. For this service, card companies normally charge a fee of from one to three percent of the transaction amount. Some of the fee goes to the card processor (such as Visa or Mastercard) and some to the card issuer (for example, a bank).

The rules for the charges vary by company. Some companies, like Capital One and Discover, do not charge foreign transaction fees for transactions in our nearest neighboring countries, Canada and Mexico.

Expanding the Charges

While each individual fee may be modest, they can add up. Card companies make significant revenue from these fees each year.

A recent class action against Bank of America claims, “The 1% international transaction fees assessed by VISA International alone resulted in $424 million in revenue in 2004—which was nearly 30% of its revenue that year.” It’s therefore profitable for banks or companies to find more occasions to charge such fees.

The Bank of American class action alleged that the bank was charging “hidden and inflated” transaction fees when customers withdrew money from their home accounts through an ATM while they were in a foreign country.

Now that the Internet has enabled consumers to shop at foreign websites, card companies see another chance to earn fees. But are they legitimate? Do the card company’s own agreements with the customer permit it to charge these fees? We’re investigating to see if a class action is needed.

Have You Been Unfairly Charged?

If you’ve been charged a foreign or international transaction fee when you used your American payment card at a foreign website, fill out the form on this page. Let us know what your experience was.

Article Type: Investigation
Topic: Consumer
No case events.
Tags: Debit or Credit Card Fees, Foreign or International Transaction Charges