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Is this a scam? A surprise “foreign transaction” fee

by Joshua Floyd on January 25, 2012

Joanna Au bought roundtrip plane tickets to Hong Kong through Singapore Airlines’ website. Even though the tickets were purchased in the United States, in dollars, she’s being charged a three percent “foreign transaction fee” by her bank. Au feels scammed.

Foreign transaction fees are common for most credit cards. However, these charges usually apply to purchases made outside of the U.S. Au used her Citibank Mastercard to make the purchase.

When she brought this issue to our attention, suggested she contact her bank in writing, explaining that the purchase was made in the United States, using dollars.

The bank said it wouldn’t refund her fee, which came to $55.

How is that possible?

After further research I discovered some interesting facts about the foreign transaction fee.

First, you don’t have to leave American soil to be charged a foreign transaction fee. Any time you make a purchase online that is processed through an overseas merchant, you could be charged this fee.

How can you tell if it’s an overseas merchant? If the prices are quoted in a foreign currency, then you’re probably dealing with an overseas merchant.

But here’s the rub: The fees are charged by your bank, not the merchant, and the cost to the bank of the transaction is zero. In other words, there’s no currency exchange taking place — it’s nothing more than a fee for the convenience of dealing with an international merchant.

Banks often back down when they’re confronted with this fact, and refund the foreign transaction fee. But not this time.

(Photo: kalleboo/Flickr)

Tagged as: Airline, foreign transaction fee

  • http://twitter.com/ElmoClarity Elmo Clarity

    I did vote that she was scammed, but in this case, I say she was scammed by the airline, not the bank.  I have been caught in this trap before.  The problem really comes down to the consumer has no idea where the transaction will be processed.  While the merchant doesn’t really gain anything from it directly, based on currency exchange rates, bring the money back to the US could get them a nice chunk of change.

    I had a situation where I purchased a product from a US company, for use in the US but got charged this fee.  Why?  Because the company also had processing centers in other countries and for some explainable reason, they decided to process it in England instead of the US.  I got dinged for the fee.  This wasn’t the banks fault, but the merchant.  The merchant claimed that I was the one at fault because my “profile” I purchased from indicated I was in the UK.  Strange since my registered address was a US address and I have never been to the UK.  Because the fee was less than $2, it wasn’t really worth the fight.  But that was the last time I dealt with that merchant.

    I’m afraid that the only solution is going to have to be financial regulations that require merchants to process transactions in the country of purchase if they have a processing center there or else fully disclose *BEFORE* you make your purchase where the transaction will be processed so you know if you will get hit by this charge or not.

  • http://www.bestcarry-onluggage.net Jeremiah Johnson

    I voted that she was scammed. I am not certain whether she was scammed by the airline or by the bank.  My instinct tells me that it was more so by the airline even though I’m sure the bank is always going to look out for their own financial interests. I think that better regulations need to be in place for such transactions to occur without question of improper action.

  • Scottjrose

    Many foreign airlines have “US” websites but they are not based in the US so its buyer beware.  Her bank should have waived the fee, however, after she contacted them, since its their fee.  Since they have refused she should tell them to take a hike and close her accounts.  As Chris has pointed out previously, Capital One offers a credit card that has no foreign transaction fee, so she should consider obtaining one for future use. 

  • mytimetotravel

    This isn’t new, and the charge may be in US dollars and still incur the fee! I bought tickets on Turkish Airlines a couple of years back, from their New York office over the phone, and paid in US dollars, and lovely Citi charged a conversion fee. A couple of weeks later I bought a book from Lonely Planet, again in USD, and for some reason the transaction went throught the UK! Now I’m careful to use my Capital One card if I think there’s any possibility that the transaction might be considered “foreign”.

  • Guest

    I can’t say she was scammed.  The bank discloses the fee (I agree most consumers don’t read the disclosures but…) – that’s not a scam.  I agree it’s not fair to Au who didn’t think she would be charged the fee – but I don’t see how it’s a scam?!

  • Chris

    Since the fees were charged by her bank & not the merchant, I suggest she get another bank. Many people have had problems with Citibank before.  Best example is the time my friend’s Citibank Visa card got stolen; he reported it stolen; they issued a new card; he travelled to Paris, went to a restaurant, presented the new Visa card and it was confiscated as a stolen card.  Citibank had issued the new card with the same number as the stolen one. Incompetence & greed is  among many of their sins.  They’re one of the banks that got bailed out a few years ago & they’re still scamming their customers!

  • Jim Caraway

    I had a similar problem several years ago. They wouldn’t reverse the charge, so I drastically reduced my spending on that card, and CapitalOne has my business since they don’t have that fee!

  • http://twitter.com/ElmoClarity Elmo Clarity

    This really isn’t an issue about the bank not disclosing the fee.  It is more the merchant not disclosing *WHERE* the transaction will be processed.  I know my bank charges this fee so when I make purchases, I try to make sure it will be processed in the US.  Unfortunately, there is no requirement for merchants to disclose this information.

  • Rebecca O`Shaughnessy

    While your solution is good, it is impossible to enact. When you pay with a credit card, there is a middleman, the processing center, before the transaction goes to the issuing bank. So the merchant deals with the “merchant bank” and the customer deals with the “issuing bank.” Because of this, the merchant has no control over the fee. And to be fair, the issuing bank has no control over where the merchant bank is located/processes the transaction.

    Many of the merchant banks are total scams to small businesses. Just google “crescent processing” and scam or complaints to see what I mean. And there are way more, this is just one I know off the top of my head from dealing with their customers. They hire 1099 employees, send them around to small businesses to get them to lease a credit card machine, train them (almost always unsuspectingly) to lie to the small business owner and then charge these small businesses huge fees. It’s really a total sham and a shame. For any small business owners, I would highly suggest you deal with your regular, brick and mortar bank. It may seem like the fees are higher, but they’re not in the long run. Their fees are straightforward and they won’t randomly claim you owe them hundreds or thousands of dollars for years, including after you cancel their service.

  • Rebecca O`Shaughnessy

    Sorry – It double posted me!!!

  • Rebecca O`Shaughnessy

    To be fair to the merchant, they almost certainly have no control over this whatsoever.

  • http://twitter.com/ElmoClarity Elmo Clarity

    Actually, they have a lot of control over it.  It is their choice which processor they use.  In a situation that happened to me before, a merchant used their UK processor instead of their US one.  The was total under their control.  

  • Mdmina

    I received a notice about 6 months ago about a class action suit regarding this same topic.  I filled out my form and received a check in the mail for $19.00 as settlement.  I believe it had to do with banks overcharging for foreign exchange rates.  Oh well I got some money back so I was happy! 

  • Anonymous

    I think your friend showed a bit of incompetence as well by not noticing that the number on the new card was the same as the stolen card.

  • Anonymous

    My Web site is hosted by a Canadian company. After reading an article on Chris’s site a while ago about “foreign transaction fees,” I checked my statements and couldn’t figure out why I wasn’t seeing any fees for the monthly hosting charges. Then I remembered – CapitalOne doesn’t charge them, and that’s the card I use. Whew!

  • Andrew Silk

    I get around this by making sure that I book foreign flights and all foreign transactions with my VentureOne rewards card by Capitol One.  Its the only thing I use the card for, but when I need it, it saves me money every time!

  • LadyLondon

    This seems to be an airline thing.  Swiss International Airlines did exactly that to me back in March last year.  This led to me being charged about $40 on my credit card for a ticket I had purchased at a fixed lower price.  I called my bank.  They backed out the transaction and rebooked it in my own currency, at exactly the my-own-currency amount I had purchased the ticket in.

  • Anonymous

    I made booking China Airlines, my credit card was charged 3% for foreign transaction fee, because the merchant is in Taiwan.
    So what, do I have to file dispute? Nope. Please learn bank regulation before filing complaint. Living in America doesn’t mean you must get free ride.

  • http://twitter.com/ElmoClarity Elmo Clarity

    No one is saying that we must get a free ride.  All that is being asked for is informed consent.  If a price is quoted in US Dollars but it is going to be processed outside of the US, inform the consumer before hand so they have the opportunity to decline the charge or use a different payment method that doesn’t incur the fee.  That is all that is being asked so there is not surprise fee added later.

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