Photo (cc) by williams_jt
Niagara Falls is a spectacular sight, but as you cross the Rainbow Bridge to the Canadian side, something very scary happens to your credit cards – most of them will charge a fee of up to 3 percent on all purchases processed outside of the United States.
Why? No particular reason. For example, American Express imposes a 2.7-percent fee on all their products except their Platinum card. Could this charge cover the cost of exchanging currency? No, The New York Times reports that a judge ruled the credit card companies “merely act as a clearinghouse, performing arithmetical calculations at insignificant cost.”
Could there be more risk associated with conducting business in dangerous places like Canada? Possibly, but then why does American Express charge Canadian customers a similar fee when shopping in the United States?
The elusive rationale for foreign transaction fees is just one of several questionable pieces of information that you’ve probably received from your credit card issuer. I’ve been writing about the credit card industry for years, and here’s my list of other claims that really bug me…
1. Responsible credit card use means reliably paying interest. Imagine an alcoholic beverage maker advising its customers to drive drunk but to be careful doing it. That would be outrageous, but credit card processors’ advice is almost as bad. Visa created a website called “Practical Money Skills For Life” that says, among other things, the following:
Follow the 20-10 Rule
This general “rule of thumb” helps you understand how much credit you can afford. Credit cards are loans, so avoid borrowing more than 20 percent of your annual net income on all of your loans (not including a mortgage). And payments on those loans shouldn’t exceed 10 percent of your monthly net income.
Granted, the site does warn about incurring too much debt and explains that carrying a balance means paying interest. But how about stating clearly that the best advice is to always pay your credit card bill in full every month!
2. We supported the Credit Card Reform Act. On their Web page discussing the CARD Act of 2009, American Express claims that they “welcome these reforms because it makes our industry as a whole fairer to consumers. And we are happy to adopt changes that make it easier for our Cardmembers to manage their credit.” This is surprising news considering their industry trade group, the American Bankers Association, opposed credit card reform for decades and fought hard to keep this law from being implemented earlier.
3. This card offers cash back for purchases. While cash back is a nice feature, the only way to really earn it is to pay your entire balance in full and avoid the interest charges that cancel out those rewards and then some. Carry a balance and even the most generous rewards will be less than the interest.
4. This card offers protection against fraud. Can you imagine a car manufacturer proclaiming their cars come with seat belts? The government requires them. Likewise, the Fair Credit Billing Act forbids banks from holding you liable for more than $50 in the case of fraud.
5. Our security features will protect you from fraud. Since banks can’t legally hold you responsible for more than $50 in fraudulent charges, and most banks waive that as well, you’re never on the hook for a dime. So who are they really protecting?
Credit card issuers take some liberties with the truth in order to sell their products and advance their industry’s agenda – not a surprise, really. But by cutting through their propaganda, consumers have better information with which to make important decisions about their credit cards.