The foreign currency gouge
For years some major credit card companies failed to adequately disclose
the fees customers paid for overseas transactions.
Hidden fees on overseas transactions
Our analysis of credit card statements and foreign exchange transactions
going back as far as 2002 finds that consumers of several financial
institutions were charged much more for overseas transactions than the
fees disclosed on their statements suggested. This understating of
charges was widespread in the industry, potentially involving millions
of dollars. Few of many affected customers are likely to have known this
was going on, because the extra fees were hidden in the exchange rates
that were applied to transactions.
* Until as recently as 2005 and 2006, bills and statements from some
major credit card companies (such as banks and other financial
institutions) understated what customers were being charged for foreign
* In other countries, customers have been compensated for failure to
adequately disclose fees.
What we found
A selection of major banks’ card statements that we analyzed found that
up to around mid-2005 (earlier and later in some cases), customers often
paid more than their bills and statements suggested. These companies’
statements did not mention the fees that MasterCard and Visa add to their
wholesale exchange rates (the fees were 1.1% and 1% respectively), which
customers were charged in addition to the banks’ fees.
A statement is the main document a consumer is likely to refer to when
checking what they’ve been charged for transactions. While in some
cases, contracts and letters of offer explained that the exchange rates
applied were set by MasterCard and Visa, this was effectively ‘buried’
in the terms and conditions and the amount of the fee they add to the
exchange rate often wasn’t mentioned.
See examples of what we found
The charging of similar hidden credit card fees has been investigated in
other countries, with legal actions in the US, and in New Zealand, where
some of the banks that paid record fines and compensation to consumers
are affiliated to Australian banking groups. Read more about the
We think the Australian Securities and Investments Commission (ASIC)
should investigate the disclosure of these fees and what was charged.
The incidents of poor disclosure we found may just be the tip of the
iceberg. We examined past credit card statements from some of the major
banks at particular points in time, but not all credit card providers
and not over the full time period that this may have occurred.
We don’t know how the law in New Zealand and elsewhere compares to
Australia’s (and as you’d expect, some banks maintain they properly
disclosed fees). However, it’s not good enough to bury references to
fees in the small print of contracts and in letters. This is true not
only for cards, but for other forms of travel money including
travelers’ checks and foreign notes.
We think all costs to the consumer – whether they’re labeled fees,
commissions or margins – should be properly disclosed in advertising and
other documents. That way you could know what you’re really paying and
make better choices.