New credit card rules come into effect Monday, February 22, 2010. There have been many articles in newspapers and reports on TV analyzing how these changes will affect the credit card world. Here is a quick overview about how these changes will impact travelers.
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Originally published by Edward Hasbrouck on his blog.
In a ruling issued 22 October 2009, the judge hearing the Federal class-action lawsuit against credit card companies for fraudulently hidden and/or inflated fees for credit, debit, and ATM transactions in foreign currencies has overruled all of the objections to the settlement and to the plan for allocating what’s left of the third of a billion dollar settlement fund after the lawyers get their fee. The only major change made by the judge was to cut the lawyers’ fee down from the US$85 million they asked for to a little over US$50 million (plus expenses).
Those who lived or travelled abroad for extended periods of time, especially if they relied on ATM cards, will be the biggest losers in the division of what is, despite its seemingly large size, a very small pot compared to the number and size of the claims. More than 10 million claims were filed, for a median of 80 days abroad, but the settlement fund will only provide a mean award of $25-30 dollars.
Ironically, several major online travel agencies (Priceline, Orbitz, and Travelocity) that used their corporate credit cards to pay hotels and other foreign suppliers were also wronged by the judge’s decision — their claims were denied, although they were clearly valid and made perfect sense to anyone familiar with standard travel industry practices, because the judge and class counsel didn’t understand their “merchant” business model and card usage.
The settlement fund wasn’t enough to pay of anyone’s claim, but the big winners in the plan of misallocation will be short-stay corporate business travellers, most of whom are double-dippers who have already been reimbursed by their employers for the fees in question, but who are extremely unlikely to pay their employers back what they receive from the settlement.
From more recent documents I’ve received from class counsel, it looks like they are still working out some of the details of the final orders, but I don’t expect any of the fundamentals to change. I can’t afford to appeal, but some of the other objectors — especially the online travel agencies, who paid millions of dollars each in currency conversion fees, may do so.
The settlement also includes an injunction restricting future fees for “foreign currency” transactions. All well and good, except that to ensure that this injunction has no effect, credit card companies and banks have already changed their terms across the board, to provide for (much higher) fees for “foreign” transactions, regardless of currency. That’s outrageous, since when the transaction is charged, billed, and settled in US dollars, it costs the card issuer and processor no more than if it were a purely domestic transaction. In some especially troubling cases, consumers have reportedly been charged “foreign” transaction fees when they bought tickets — paid for in US dollars, and processed and settled netirely in the USA — from ticket office in the USA of airlines headquartered abroad. The Consumer Travel Alliance needs your help in lobbying Congress to put a legislative stop to this scam by Federally bailed-out banks.
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.
Originally published in Tripso.com. May 7, 2009
Read ‘em and weep: Bank of America, while Congress is decrying their fees and changes to credit terms, is adding to its credit card fee gouging.
Bank of America is not alone. Many credit card issuers have similar rules. Check your fees. Don’t get stuck.
As American taxpayers are pouring more and more money into saving Bank of America and other failing financial institutions, the companies are doing their best to screw those from whom they beg. All of this in advance of the main summer travel season when these types of transactions are expected to be heaviest.
Bank of America just announced an increase in their transaction fees for using ATMs and expanded their definition of “foreign transaction fees.”
Now, for example, anyone withdrawing $200 in US dollar funds as a cash advance from an ATM in a foreign country will be faced with a $10 (minimum ATM charge) plus a 3 percent foreign transaction fee. Total: $16 to get money from the ATM. That’s 8 percent not counting the mandatory Visa/Mastercard 1 percent charge. A withdrawal of $400 would result in a total charge of 8 percent as well.
The exact wording of the new Bank of America rules regarding ATM charge increases:
Effective June 1, 2009, the transaction fee (FINANCE CHARGE) we asses on each of the transactions identified below will be equal to 4% of each such transaction (Fee: Min. $10):
• ATM Cash Advances
• Balance Transfers
• Cash Equivalents
• Check Cash Advances
• Direct Deposit Cash Advances
• Wire Transfer Purchases
The Bank of America is also expanding their Foreign Transaction Fee:
Amendment to Your Credit Card Agreement:
Effective on June 1, 2009 we are replacing the definition of “Foreign Transactions” in the section of your Agreement titled Words Used Often in this Agreement with the following:• “Foreign Transaction” means any transaction made in a foreign currency, and any transaction made in U.S. dollars if the transaction is made or processed outside of the United States. Foreign transactions include, for example, online purchases from foreign merchants.
These “Foreign Transaction Fees” are affecting many cruise clients as well as those of us who travel anywhere outside the borders of the U.S.
The best way to avoid these credit card fees is to carefully choose the card used when traveling internationally. Of the major credit card issuers, use Capital One for purchases since they are the only major credit card issuer that doesn’t charge foreign transaction fees. (Their ATM cash advance charges are hefty, however.) Or use a credit card issued by a smaller bank or your credit union. These cards, especially the credit union credit cards, rarely have foreign transaction fees or additional ATM fees built into their agreements. Some even rebate most ATM charges.
These articles, written years ago, still tell the true story for credit card use overseas or across the border:
7 rules for using your credit card overseas
These truly hidden fees, obscurely nested in dense agreement verbage, are far more expensive than any first-check-bag charge assessed by the airlines. Again, with the banks as with the airlines, those whom the American taxpayers bail out seem intent on gouging their benefactors.