Credit Card Costs

[menton1]

[VivreManger]

menton1 Posted on Jun 5 2003, 03:16 PM

Well, we have a Business Gold Amex, and a Delta Skymiles Gold Amex. Can I assume there is no rebate on these particular Amex cards? Interesting. I assume, though, that the rebate comes off AFTER the Euros are converted into dollars; so its actually a miniscule amount less than 1.5% on a foreign currency conversion.

Do you know what the Delta Skymile Gold charges for foreign purchases? I assume that it is the same 2% that my UAL Platinum does. I believe that the Amex card should charge only 1%.

That Amex card has no rebate, I believe. The Delta card should have the rebate of mileage, whose exact value may have recently changed. How you calculate the rebate value for air mileage is fairly complicated, but possible.

Edited June 5, 2003 by VivreManger (log)

[Bux]

The thing about the value of milage, is that it's nothing unless you actually get to use it. Don't get me wrong, I have a Delta SkyMiles AmEx card, but I'm still skeptical. Anyway, all of the AmEx branded cards use the same 2% for conversions, including the Delta Optima series. If the actual value of the mialge reward is as much as one cent a mile, and you're already paying the fee to have the card, using this card overseas is probably just as good as using a non reward card with no surcharge.

Working on the assumption that a bird in the hand is worth two in the bush, I use my Visa and MC credit cards overseas.

[Bux]

Bux. Sorry. AAA used to use American Express rates. I didn't realize they switched to Travelex. Obviously they are now profiteering.

I'm not sure AmEx rates aren't worse. Years ago on rec.travel.europe there was some guy who had spent as much time as I had on getting all the info he could on ATM, debit and credit cards vs. TCs and he was always railing against AmEx. People would post the fact that got AmEx TCs without paying a fee and he'd go on to tell them how much they lost on the exchange rate. I've just found TCs too much of a pain to cash to bother with them.

[pirate]

Bux: Amex may also have changed. The last time I used AAA was about 1985 for DM, FF and CHF travelers checks and the rates matched the WSJ reported spot prices. You're much more up to date. I don't use travelers checks in Europe. In Japan, TC's beat cash and you get the government set rate everywhere and it's very near spot price. By the way it looks like restaurants in France will have the same 5.5% VAT as Macdonald's starting in Janauary. Do you belive the restaurants will pass on the savings?

[Bux]

I think we'll be lucky if the savings is reflected in a slightly longer period without a rise in prices. I'm not an optimist about savings being passed on to the consumer. As I recall the VAT for "better" restaurants was 19.6%. It would be criminal not to see a 10% reduction in the price listed on menus.

It's very hard keeping up with the latest wrinkles in getting local currency and making purchases abroad. With the charges the banks are trying to hide and the number of ways the consumer can be hit with fees, I'm hesitant to write off TCs, but I haven't used them in years. I can't remember when ATM cards became reliable, but with the exception of a few days in China, we've gotten all our local currency via an ATM abroad. I remember some trips long ago when it seemed to be hit or miss. I remember the first time I thought we could count on getting currency with an ATM card and mine didn't work. Luckily I was able to cash a large personal check at American Express to cover most of the trip's cash needs. I got $100 in cash and the rest in TCs with a 1% fee for starters and then a fee, commission, bad rate or combinations whenever we needed cash. All that seems like ancient history now.

I can't remember the year we were last in Japan and it may have been almost ten years ago. Whatever I discovered then may no longer be relevent, but I remember depending on my ATM card for cash. We'd find a row of machines from different banks all lined up at the airport, in a train station, department store, or even on the street and while two thirds of them bore either the Visa or MC logo of our ATM card, we'd have to hit two or three before we got one that would actually dispense cash. Never figured out why, and my bank -- I talked to the v.p. in charge of cards at Chase -- was no less clueless.

[bigbear]

Not for nothin'..... I have a Chase Stockback MasterCard that rebates 1% on everything and more on a few things. If you don't want the cash, you can choose to invest your rebates in a Merrill Lynch S&P 500 index fund.

[Bux]

Not for nothin'..... I have a Chase Stockback MasterCard that rebates 1% on everything and more on a few things. If you don't want the cash, you can choose to invest your rebates in a Merrill Lynch S&P 500 index fund.

Intreresting card, but in terms of overseas charges, the 2% surcharge would outweigh the 1% rebate.

[menton1]

Anybody have any info as to why Amex seems to care so little about doing business with its cards in France? Apparently it's much more expensive for the merchant than the other cards. Even in Italy the Amex is more widely accepted than in France.

If you ever want to see a French merchant grimace, just pull out your Amex to pay the bill!!

[bushey]

Thanks to all for your input. Here's what we decided to do:

1) Change daughter's passbook savings account (it's actually a uniform gift to minors account) to a statement account and get an ATM card for withdrawals in Europe.

2) Foreign currency through AAA -- wish I had done that last week! -- about 250 in euros and 50 swiss francs, so she won't have to go looking for an ATM right away or go looking to change money at a bank

3) Prepaid AAA gift card that can be used as a Visa. In case ATM doesn't work, out of euros or she sees something she *has* to have. The gift card is in US dollars so it can be used here at home if there's a balance left, and it will have her signature on it.

Now if anyone knows of a super-cheap deal on airfare so I can go see her perform in Paris...........

[Bux]

1) Change daughter's passbook savings account (it's actually a uniform gift to minors account) to a statement account and get an ATM card for withdrawals in Europe.

Is this a checking account or a statement savings account? Is the bank 100% sure the ATM card will work abroad. I have never been able to make withdrawals from anything but a checking account and I've heard of others whose primary account, or only account, was a savings account and who could not access that account from an overseas ATM. My general opinion is that bank officials are absolutely clueless about how cards work abroad and can rarely be trusted to know which cards work and where they work abroad.

[bushey]

It's a statement savings account, and the card is strictly an ATM withdrawal card, as opposed to a debit card. I'm not sure why the type of account the card is attached to should make a difference overseas, unless for some reason the software is hard coded to withdraw from checking accounts. I'm not sure we'll ahve enough time to change the account type again before she leaves. Maybe a few traveller's checks just in case wouldn't be a bad idea..............

We've occasionally had problems using our ATM cards overseas. Not in France, but in the French West Indies. We had to try a number of different systems to find one to work with our card.

[Bux]

My caveat about savings accounts has nothing to do with any understanding of the system and is based solely on other people's reported experiences. I'm also not sure if this has been mentioned directly, but the bank must be on either the Cirrus/MasterCard or Visa/Plus network. I've yet to find a card that didn't have one of these logos that could work in Europe. In the West Indies, it's possible to find ATMs connected to smaller US networks. I seem to recall seeing NYCE in both Puerto Rico and a non US island. I'd get the TCs in US dollars. They're always a reasonable back up and you can redeposit them if they're not used without having to suffer yet another conversion. I also believe you'll get a better rate of exchange buying euros there than here, although with the current trend, the rate gets worse every week and sometimes you can get hit with minimum commissions that wipe out any advantage with small exchanges.

For all this, I trust that when your daughter returns, the few dollars you will have lost on inefficient currency exchanges will seem small potatoes in exchange for her opportunity. I am a very fond supporter of foreign travel and cultural exchange programs for teenagers. I was dismayed, the other day, to learn of the cancellation of a home stay visit by a group of French students at the last minute. It seems the American families had second thoughts. Some parents were concerned about the safety of the students and others just didn't feel comfortable having a French teenager in their home. Actually, I was shocked, revolted and disgusted by these fellow countrymen and take some comfort in knowing their attitude is not typical of those I know.

[bushey]

Thanks, Bux. She's pretty excited about the trip, but there's still standardized college exams, finals, and friends' graduation parties to get through before she can really focus on what's coming.

The organization she's traveling with, Sound of America, has been sending periodic newsletters to address parents' safety concerns, etc. They'll be in Germany, Austria, Switzerland, Italy, Luxembourg and France. We've heard (from a friend who did the tour last year) that the European audiences are completely wonderful: enthusiastic, supportive and they turn out in force. And music is such a great means of communication -- everyone can understand it.

As for welcoming others, we were hoping to be able to host some Chinese exchange students next year, but that program is probably on hold due to SARS . The China trip for our local students in April was cancelled and I suspect it will be a while before it is reinstated.

[VivreManger]

Since we last addressed this issue, I have learned new details about credit card foreign exchange charges and I am about to conduct an experiment to confirm or deny the information I have been given. The news is that over the past few months some credit card companies are starting to reveal their hidden charges.

First - to explain the terms and review the main points (with apologies for the repetition of what has appeared earlier in this thread):

Credit card foreign currency transactions use as their base, the best exchange rate practically possible for small retail customers, the banker's wholesale rate. That is why generally speaking, it is better to pay by credit card, than by cash abroad. The purchase of foreign currency, be it through traveler's checks, with US currency, particularly in small amounts, usually carries service and other fees that can easily add on at least 2 to 3% to the cost. Often times these fees include not only simple percentages but also minimum service charges per exchange so that multiple small transactions are more expensive than a single large one.

While credit card foreign currency exchanges use the favorable wholesale rate as the base, that is not the end of the cost. For some time -- I do not know when it began -- both Mastercard and Visa add a flat 1% exchange fee to every transaction. If you scrutinize your bill and note the rate, you should realize that the rate represents the wholesale exchange for the date of the actual posting plus a fee of 1%. Incidentally the date of the actual posting by the merchant to the local bank of the transaction may not be the same as day on which you made your purchase. Depending on the course of the dollar, that may or may not be to your advantage.

More recently -- and here again I do not know when this began -- a number of banks have started to add an additional charge to foreign transactions. BankOne which administers many credit cards adds 2%. Chase adds 2%. Airline travel mileage cards almost all add such a fee as well. Typically, the charge is incorporated into the exchange rate itself so you are not even aware of this additional cost.

The new information follows: To its credit as of 18 December 2002, Bank One has started to acknowledge this practice by listing the 2% charge as a separate exchange rate adjustment for each transaction. It should be noted that the percentage itself does not appear, but the resulting US dollar amount does. Thus in early June I purchased by phone tickets for the Montreal Jazz Festival using a BankOne United Mileage Plus Visa card. The charge appears as 297.63 Canadian dollars exchanged at the rate of .74001276 plus an exchange rate adjustment of 4.41 US dollars. The calculated charge appeared on my bill as 224.66 US dollars.

If someone has easy access to the wholesale bank rate for 3 June, you can confirm that it was .732612632 US dollar for 1.00 Canadian dollar, a rate I calculated by multiplying the exchange rate stated on the bill by .99, to establish the rate without the 1% Visa exchange fee.

Second, the experiment.

After a bit of research, I now believe that the best credit card package is the MBNA World Points Visa card. It claims that it adds no charge to the base 1% charged by Visa itself. It also offers points that can be redeemed for cash, hotels, air tickets, or merchandise. While the air ticket redemption is not quite as generous as the airline mileage cards, the redemption options are far more flexible than the airline cards. The bottom line is that for foreign currency purchases it claims not to impose the 2% surcharge that many other cards do. Of course all of that remains to be confirmed in practice.

When we are in Quebec next month, I intend to use the MBNA card, but I will also conduct some controlled experiments with our other cards to see who in fact offers the best deal, whatever their customer service representatives claim.

A note on debit cards. As far as I have been able to tell, the additional foreign exchange charges apply equally to credit and debit cards, but I have not investigated that detail.

Edited June 20, 2003 by VivreManger (log)

[marcus]

The foreign exchange rate surcharge over and above the visa/master 1% is disclosed in the individual credit card's user agreement. Most visa/master charge a 2% surcharge, but there are a number of cards available including MBNA cards that do not add any surcharge. I use USAA Savings in Las Vegas which used to be available only for the military, which also has no foreign exchange surcharge. It has scored the best overall in a number of surveys for its overall terms of its overall terms and conditions and customer service. I have been quite satisfied. One thing that you need to look for is the 25 day grace period, many cards are down to 20. This is extremely important as the clock starts on the day the bill is generated, not when you receive it, which can be 5-6 days later. I believe that American Express, which does not use the visa/master payment network, has a surcharge of 2%.

[VivreManger]

The MBNA card claims to have a 25 day grace period. but that remains to be seen. Other cards that have been recommended include the AAA card and the Amtrak Card, but I have yet to investigate them.

[menton1]

One big problemm with USAA--- they will not fight any foreign merchants on your behalf; in other words, you have none of the typical protection against fraud as with other cards. I was charged a fraudulent amount by a merchant in the UK when I had this card, and they refused to investigate the matter, saying that "they can't investigate foreign charges."

On the other hand, the larger bank VISAs and Amex will go to bat for you and make the merchant, foreign or domestic, prove that their charge to the card is valid. Another factor to consider.

[marcus]

Are you saying that the legally mandated process for challenging credit card charges does not apply to foreign billers. This is hard to believe. What happens when a totally spurious charge appears on your bill from Albania?

[Bux]

... generally speaking, it is better to pay by credit card, than by cash abroad.  The purchase of foreign currency, be it through traveler's checks, with US currency, particularly in small amounts, usually carries service and other fees that can easily add on at least 2 to 3% to the cost.  Often times these fees include not only simple percentages but also minimum service charges per exchange so that multiple small transactions are more expensive than a single large one.

Yes and no. If you get your cash by making a withdrawal via an ATM or debit card, you should get the same rate of exchange as you get using the same bank's credit card. The caveat here is to be sure they have no fee for using that card -- many banks charge a fee to some account holders for using other bank's ATMs. Otherwise VivreManger sums up the situation as I know it. Marcus' comments on AmEx and the grace period are also worth noting. Much of this has already been noted before and I hope we'll get a more complete essay at the end of VivreManger's investigations.

[menton1]

Are you saying that the legally mandated process for challenging credit card charges does not apply to foreign billers.  This is hard to believe.  What happens when a totally spurious charge appears on your bill from Albania?

Apparently, based on my unfortunate experience with USAA, it is up to the issuing bank to decide on disputed charges. They are the judge and jury in disputed cases. I have always had good support from Amex in such matters. USAA refused to intervene. (They said I would have to sue the merchant in the UK) (Ho ho!)

[Bux]

The new information follows:  To its credit as of 18 December 2002, Bank One has started to acknowledge this practice by listing the 2% charge as a separate exchange rate adjustment for each transaction.  It should be noted that the percentage itself does not appear, but the resulting US dollar amount does.  Thus in early June I purchased by phone tickets for the Montreal Jazz Festival using a BankOne United Mileage Plus Visa card.  The charge appears as 297.63 Canadian dollars exchanged at the rate of .74001276 plus an exchange rate adjustment of 4.41 US dollars.  The calculated charge appeared on my bill as 224.66 US dollars.

Fat Guy just forwarded this link to me and asked if the story had been mentioned in this thead. Visa/MasterCard May have to Give Back Overseas Transaction Fees. The article is dated February 12, 2003, but although this is a subject I've followed closely, this is the first time I've heard about this ruling.

"California Judge Ronald Sabraw made an initial ruling that Visa International and MasterCard International may have to return $500 million in fees charged to customers who used their credit cards while overseas." The "initial ruling did not find fault with the conversion fees or find violations of the Truth in Lending Act, but the judge did find that a California statue pertaining to deceptive practices was applicable to the case."

I don't know if this has been appealed or if a final ruling has been made. I also don't know if the ruling is applicable only in California, but I suspect it's this is why some banks have re-examined their (deceptive) practices.

[VivreManger]

The story has not been mentioned in this thread, though I was vaguely aware that there had been a court ruling in the matter. Interestingly BankOne adopted their policy (in December 2002) before the ruling came out (in Feb 2003), perhaps sensing that at some point the issue might go against them. By posting it, as they now do, they may protect themselves from the charge of deception, but on the other hand they raise the possibility that some customers might drop them for other cards that don't surcharge.

[bloviatrix]

The problem with determining the fees charged is that most cards just put a dollar amount, they cleverly don't break down what exchange rate they use, what percentage fee, and/or what flat fee charged.  It's almost impossible to calculate without this information.  I found a fairly good web site discussing the topic, and this page shows that just about ALL Debit cards have hidden charges, and another click will display a chart saying that First Union Credit Card is the best, with NO added percentage, and a small $1.50 for ATM withdrawls.    Foreign currency conversion fees

I believe there was also a court case where several credit cards were ordered to refund these fees to customers.

Let me say that I am bloviatrix's spouse and an attorney with some knowledge about this litigation. There were several cases filed around the country regarding foreign currency transaction fees that were consolidated into one proceeding in federal court (the Southern District of New York, to be precise).

The suit includes most of the major credit card companies (Citibank, Chase, Bank One/First USA) that charged (and, in most case, still do) a 1% to 3% fee on top of the 1% fee that Visa or Mastercard charges. The suit alleged violations of antitrust law, along with violations of the Truth in Lending Act and other consumer law -- mainly for the failure to properly disclose the fee. The judge has ruled on some preliminary motions, but the case has not been fully decided yet. Some of you might be confusing this case with a similar case in California against the Visa and Mastercard associations, where a state judge ruled that customers should be reimbursed the Visa/MC 1% fee to the tune of several hundred million dollars. That California ruling is being appealed.

As several of you mentioned here, when you make a purchase abroad, most of these companies simply convert the purchase to dollars without telling you exactly what conversion rate they used, on which date they made the conversion, and what fee did they take when they made this conversion. It's simply embedded in the dollar charge without any transparency to the customer.

The various reasons/defenses they have offered are as follows: (1) They tell you in the initial customer agreement about these foreign surcharges, or they've slipped inside your billing statement an amendment to the agreement allowing these surcharges; (2) they're doing this to make up for the higher amount of fraud they get stuck with from foreign purchases; and (3) they're giving you a better rate than you would get at the moneychanging centers abroad, so don't complain.

There are a few credit card companies that generally don't impose this surcharge (MBNA, Capital One) but check with your company to ascertain the policy on your card before you go. You may get a better deal with your ATM card, but these will generally impose fees up to $3 per transaction. In that event, you won't want to pull out just 100 euros each time you go to the ATM, because that would amount to about a 3% fee. Again, check with your individual bank to determine its policy.

[Bux]

You may get a better deal with your ATM card,

I was told by Chase that they didn't apply the 2% foreign currency surcharge, but when I did a test withdrawal in France, I got exactly 2% less money for my withdrawal from the Chase account than I did on another bank account. Unfortunately I made the test on the trip following one in which I paid everything with my ATM/debit card.