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Currency-Exchange Fees Taking Bite Out of Dollars

FinanceA handful of major banks have quietly imposed surcharges of 1% to 4% on purchases made abroad with their credit cards.


Attention, foreign travelers: A banker may be eating your lunch.

This has nothing to do with ATM charges, minimum-balance requirements or any other vagaries of domestic banking. This new nibble at the consumer's pocket is a small-print maneuver by a handful of major banks--soon to be joined by American Express--that affects millions of travelers who use credit or charge cards to make purchases abroad.

Officially called currency-exchange surcharges, these new fees run 1% to 4% and give banks a chance to bring in new money without providing any new service.

For many years until now, whenever customers charged something overseas using cards such as Visa and MasterCard, included in their purchase was a 1% foreign currency conversion fee, no matter who the issuing bank was behind the card. These new fees, however, come on top of that 1% and are charged by the issuing bank, rather than the card company. These costs may be hard to spot as a line item in your next bill, but banks are required to give cardholders notice in advance when fees like this are added. If you're not sure about your own bank, call its customer service department.

Here's an example of how the new fees work: If you use a Citibank Visa to spend $1,000 overseas on your next vacation, Citibank will be keeping an extra $20 (or 2%) of your money--enough for a nice lunch. Spend $1,000 abroad with a card issued by Providian Financial of San Francisco and the bank holds onto an extra $40.

The move has been denounced by consumer advocates, from the editors of the Consumer Reports Travel Letter to travel guru Arthur Frommer. On April 25, Frommer urged consumers at the Los Angeles Times Travel Show to scorn banks that impose the new fee and move their business to one of the many credit card-issuing banks that have so far resisted such fees.

Many analysts trace this trend to Providian Financial, which in July 1998 added a 4% fee to the traditional 1% foreign currency charge. The next major player was Citibank, the second largest credit-card issuer in the U.S. with more than 40 million cards in circulation. Citibank notified customers in October, then added a 2% currency conversion fee in November 1998.

From there the trend rolled on to First USA Bank, the largest card issuer in the world and the backer of about 58 million Visa cards and MasterCards worldwide. First USA (which is the card-issuing arm of Bank One) told its cardholders to expect a new 2% currency exchange surcharge (on top of the usual 1% fee) effective April 1.

But in late March, the company blinked. For the moment, the surcharge is on hold.

"We don't plan to assess the fee at this time," said First USA spokesman David Webster in late April. "We did not receive many complaints. This is a marketing decision."

Like other spokespersons, Webster was unable to name any new overhead expenses associated with currency exchanges. First USA's top officials, he said, "felt it was important [in competition against other banks] for us to have the option," he said.

Meanwhile, American Express has had no such second thoughts. In early April, the company advised its 27.8 million U.S. cardholders that it would double its foreign currency conversion surcharge from 1% to 2% on June 15.

"The volume of [international] transactions has increased, and there are administrative costs associated with that," said spokeswoman Emily Porter, but she could give no specifics. Basically, she acknowledged, the move is "an effort to improve overall economics." First USA's retreat, she said, has had no effect on American Express's plans.

Consumers with credit cards linked to airline frequent-flier programs should be especially alert. When I called First Bank of Chicago about its United Airlines Mileage Plus First Card, an operator told me that the currency exchange fee had been scheduled to jump from 1% to 4%, then returned to the line to say "we've delayed that, apparently, and now we don't know when the new rate will start." She blamed the delay on media reports confusing cardholders.

The fee hike comes just as Europe is adopting the euro as a simplifying common currency in international transactions. For months, European government spokesmen have been speaking of how the euro would save American travelers money, which it may well do. But those predictions didn't take into account competitive pressure on this side of the Atlantic, and the scramble by U.S. banks to grab every feasible chance to boost income without added service costs.

However, despite the new fees, credit cards are still the best way for travelers to spend money abroad. They're safer than carrying cash; the "inter-bank" currency rates they use are substantially better than those offered to travelers who hand over cash or travelers' checks at any hotel, exchange kiosk or bank; and if a product you buy proves defective or is never delivered, you can give stop-payment instructions to the card-issuing bank.

The good news is that many banks have resisted this move so far. Also, Diners Club International is sticking with the 1% conversion fee it has had in place since the 1950s.


Christopher Reynolds welcomes comments and suggestions, but cannot respond individually to letters and calls. Write Travel Insider, Los Angeles Times, Times Mirror Square, Los Angeles 90053, or send e-mail to

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