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Even card purchases at home trigger 'international' fee

Visa, MasterCard charge fees for transactions involving foreign bank

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You may be hit with a "foreign transaction" fee even if you're not in a foreign country. Visa and MasterCard, the two largest credit card processing networks, now charge fees to credit card issuers when a consumer makes a transaction that involves a bank located in a foreign country -- even if the purchase is made in U.S. currency via the Internet in the comfort of a living room in the United States.

Foreign transaction fees for domestic purchases
Consumer tip

Both major credit card networks now charge banks a fee for processing "foreign transactions" -- even if they are made in the United States.

If you make credit card transactions and the merchant uses a bank located in a different country, an international service assessment (Visa) or cross-border transaction fee (MasterCard) may be charged.

The bank may or may not pass this fee on to the credit card user. If the fee is passed on, it must be disclosed.

Who's affected: Anyone making purchases online (such as on eBay or other websites), by telephone or in person from merchants using nonU.S. banks.

Consumer tip: Before you buy, ask the merchant the name and location of the bank used to process the payment.

Be prepared to shell out an additional 0.8 percent of the purchase price if you use a Visa credit card and if your credit card issuer passes the fee on to you. On April 4, 2008, the giant credit card processing network began charging its member banks an "international service assessment" (ISA) fee on all international purchases, regardless of whether transactions are conducted in a foreign currency. MasterCard has charged a similar fee since 2005.

Who could be affected by these single-currency fees? Anyone making online, telephone or in-person purchases from vendors that use foreign banks, and whose credit card issuer passes transaction fees on to customers.

What's foreign about this?
Norman Tyau, a Hawaii resident, says he was surprised when he got his April 2008 monthly Visa card statement showing a $9.18 foreign transaction fee. He had gone online and booked a $918 flight on China Airlines. The airline confirmed the purchase in U.S. dollars.

"To me, my transaction was made in the U.S.A and confirmed by the seller in U.S. dollars; where is the foreign part and where is there any foreign exchange?" Tyau wonders. "Everything should have been accomplished in the U.S.A. electronically via computer."

"But when I received my statement from the credit card issuer, there was a 1 percent foreign transaction fee charged. In corresponding with the credit card issuer, they claimed that they did not make such charges; that it was made by Visa. When I contacted Visa, they claimed that they did not make such charges and that it was made by the credit card issuer," Tyau says. His credit card issuer, Pentagon Federal Credit Union, told Tyau it was not responsible for the fee and pointed the finger back at Visa.

To me, my transaction was made in the U.S.A and confirmed by the seller in U.S. dollars; where is the foreign part?

-- Norman Tyau    
Hawaii resident and Visa card user    

Visa statement
Both are sort of accurate. Visa didn't directly charge the fee of Tyau; it charged a fee to the credit union, which passed it along. According to a Visa statement: "Visa Inc. does not assess any fees to cardholders or merchants. Visa applies International Service Assessment (ISA) fees ranging from 0.15 to 1 percent to its financial institution partners for their use of the global payment system.

"The fees are paid by financial institutions on transactions that require the use of our global infrastructure. Since Visa does not assess any fees to cardholders or merchants, we have no involvement in financial institution pricing to cardholders or merchants. If financial institutions or merchants decide to assess a foreign transaction fee to their customers, they are required to provide details to their cardholders and consumers."

Before April's change, Visa charged credit card issuing banks a 1 percent fee to process international purchases only when they involved conversion of foreign curency, such as from dollars to euros or pesos, during international travel. Banks may but not always pass this fee on to credit card holders.

MasterCard charges a similar fee, called "cross border transaction pricing," in which it "assesses U.S. issuers when a U.S. cardholder makes a foreign purchase regardless of whether MasterCard performs the currency conversion on the transaction," MasterCard spokeswoman Jennifer Stalzer wrote in an e-mailed response.

Single-currency transactions
Under its policy, Visa charges credit card issuing banks 0.8 percent of the purchase price when card users in one country purchase merchandise or services from another country using the same currency (called a single-currency transaction). Visa defines an international transaction as one where the credit card issuing bank and the merchant's bank are located in different countries. When currency conversion is necessary, the 1 percent fee is applied instead.

MasterCard also charges 1 percent for currency conversion and a lesser percent when no conversion is necessary on a cross-border transaction. MasterCard's cross-border fee has been in effect since 2005. 

American Express and Discover, the other card networks, do not charge the single-currency fees to issuers, according to company representatives.  

Foreign transaction fees have received a lot of attention in recent months because millions of consumers were eligible for refunds of currency conversion fees charged on Visa, MasterCard and Diners Club cards. The credit card companies agreed to a $336 million settlement in an antitrust lawsuit that claimed fees ranging from 1 percent to 3 percent were passed on to customers without their knowledge.

Shopping and credit cards
Shopping and credit cards

Don't allow a convenience to become a curse. If you frequently purchase with plastic, CreditCards.com offers useful tips to help you become a savvier shopper.

Disclosure required
Two federal laws -- the Truth in Lending Act (Regulation E and Regulation Z) and the Truth in Savings Act -- require banks and financial institutions to disclose when such fees are passed on to debit card and credit card holders. Visa and MasterCard also have these clauses in the their agreements with issuing banks to disclose fees.

Karl Leslie, a senior attorney with Wolters Kluwer Financial Services, a consulting firm that offers advice and products to help financial institutions comply with federal and state laws, says the single-currency fees were likely developed by the card networks to close a loophole that some foreign merchants had begun to use.

"Some foreign merchants were agreeing to do transactions in U.S. dollars, which of course would circumvent the currency conversion fee," says Leslie. 

See relatedForeign transaction fees on the wane

Published: August 6, 2008


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