Photo (cc) by M4rvin
Recently, people around the country started to receive unexpected checks from the “Foreign Currency Fee Litigation Settlement Fund.” Many skeptical recipients wanted to know if these checks were real or part of some kind of scam.
It turns out these payments are the result of the settlement of a class-action lawsuit regarding the improper disclosure of credit card foreign transaction fees and the artificial inflation of exchange rates. Although the deadline has passed to claim your portion of the settlement, it’s not too late to learn about foreign transaction fees and how to avoid them…
What’s a foreign transaction fee?
This is a fee charged on a credit purchase processed outside the United States. It’s not a currency conversion fee, since it applies even when overseas transactions are conducting in U.S. dollars.
These fees can even apply to transactions made from home – but processed by a foreign merchant such as an overseas airline. When these fees apply, they’re usually between 2 and 3 percent of the purchase price. Since credit card issuers receive the most favorable interbank exchange rates, the courts have held that these fees are nearly pure profit for the task of performing simple arithmetic.
Steering clear of these fees
Although the authors of the CARD Act of 2009 chose not to regulate or eliminate these fees, the free market is finally starting to. As consumers learn about these unnecessary charges, more products are waiving this fee – and more banks are eliminating it on all of their cards.
Therefore, the easiest way to avoid these fees is to use one from the growing list of cards that are fee-free. Capital One deserves credit for being the first major bank to eliminate these fees on all of their cards. This year, PenFed and Discover also removed foreign transaction fees from all of their cards. Chase eliminated these fees on many of its cards marketed to travelers such as their British Airways and Sapphire Preferred cards.
American Express waives this charge for its Platinum Card holders – but it still charges a 2.7 percent foreign transaction fee on its lesser products.
1. Watch out for foreign processors. Be extra-careful placing orders from overseas companies, since these charges could apply to goods and services purchased from home. If in doubt, use a fee-free card if you have one.
2. Ask for a waiver. If you do get stuck with foreign transaction fees after your next trip over the border, you might be able to have them forgiven. As with most fees, cardholders in good standing are often successful when they simply call their bank to ask for the fees to be waived. Your bank may be surprisingly willing to do so, since it didn’t incur any direct cost – and it wants to keep you from moving your business to a competitor.
3. Never use your credit card to withdraw cash. Foreign transaction fees are onerous, but they pale in comparison to the costs of cash withdrawals. These transactions usually incur a cash advance fee, and a higher interest rate is applied immediately with no grace period. Worse, even cash advances are often subject to the same foreign transaction fees as purchases!