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Caveat Emptor  |
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This Latin aphorism has been coming frequently to mind, as my dealings with the banking foreign exchange industry become more and more extensive.
My present source of irritation relates to the hidden surcharges that Citibank and Chase are starting to impose on credit card foreign currency transactions. For years, the common formula when charges in foreign currency were made to your card was as follows. When you used your card to make purchases in foreign currency the Visa and MasterCard networks, as well as American Express, Diners and Card Blanche, would pay the local merchant in the local currency (minus their commission). They would then convert the local currency at the date’s interbank rate to the currency of the country where your card was issued, add approximately 1% to cover the exchange process and then pass the amount to your card, which would add it to your account without additional fees.
1% is far less than what you lose in any other sort of foreign exchange. That’s why for years, travel experts would recommend that foreign purchases be put on credit cards to avoid being gouged on foreign exchange. When you convert cash or traveler’s checks at a bank or exchange office, you typically lose anywhere from 5% to 15% and in hotels, the loss can be as much as 20%.
Last year however, Citibank and Chase decided to start slowly adding a “fee” of their own to the amounts passed on by Visa and Mastercharge, and American Express upped it’s conversion fee to 2% with Diners and Card Blanche, now divisions of Citibank, following immediately. This fee is pure profit to the banks issuing the credit cards. It doesn’t cover any services, as the networks are responsible for the currency conversion and its expenses. Some of the added fees on the Visa and Mastercharge accounts are now as high as 4%, which, when added to the 1% the networks charge, wipes out the advantage the use of the cards gave to the consumer. What’s worse is that both Chase and Citibank are hiding this gouging, since few people check or have access to the foreign exchange rates of the transaction date.
It’s like the camel’s nose under the tent. Other large card issuers, like First USA and Bank of America are watching this process. If the consumer doesn’t protest too much or change to another card away from the offending company, they too will probably start padding the bills.
Ask your bank if it pads the foreign exchange bills; let them know of your displeasure and change cards, or get an additional card that doesn’t pad the foreign transactions and use that one for travel.
And remember “Caveat Emptor”, let the buyer beware!
Manos Angelakis
Managing Editor LuxuryWeb.com
editor@luxuryweb.com
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Manos Angelakis
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