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!

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  • 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!

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  • 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.

  • Jay3381

    This is easy…change banks. There are so many incentives to change bank cards, all you need is an excuse to do it.

  • KK

    I had a similar experience with a catalogue for British shoes.  The addresses and phone numbers were in the US, so I assumed that this was an outlet for British shoes.  I got hit with a foreign transaction fee.
    I have not had this issue with foreign airlines, but I could see it happening.  The website is often based in the US when you check the location and fares are listed in dollars.  I would assume that you would pay in dollars, unless otherwise warned.

  • brianguy

    I had to buy tickets to fly on Air Canada a couple of years ago, and incurred such a fee though I researched the travel costs ahead of time and knew what charges I was going to be hit with.  the reason is, the company trades in their local currency, not yours.  that includes things like paying their suppliers from food vendors to aircraft manufacturers, and of course employees.  thus they also collect revenue in the same currency.  unless the company maintains a currency exchange, or are truly multinational and have different HQ in multiple countries, they have few convenient ways of accepting your local currency in exchange for a good or service.  so they leave your bank to convert it unless you have another way to pay.  

    they then maintain all their financials in one currency, and convert their listed prices (via your bank) to how much that is in your currency (USD) in real-time.  so it’s your bank that’s technically charging you the fee, not the airline.  you should ask them how they can help you avoid these fees in the future.  most likely they’ll shrug or laugh at you, but it’s worth a try.  I have found a few currency exchange websites that will allow you to do this cheaper than 3% if you jump through a few hoops.  hardly worth it for buying one plane ticket, but if you’re doing a lot of business or travelling frequently it’s worth a shot.   or if you or a friend have an account with a bank in the other country (in this case Taiwan, use their card and avoid such fee).

  • brianguy

    most institutions wouldn’t waive the fee, and I don’t blame them.  it wasn’t their fault that she was clueless about conducting foreign transactions, which is most likely clearly spelled out in the account disclosures that she didn’t read.  

    and as harsh as this sounds barely matters for them to lose her business in the long run.  unless she has at least $15,000 in deposits in the bank, or a mortgage and/or car loan with them, they likely don’t really care about refunding a relatively modest fee, but will probably offer if she complains enough.  nearly all banks and/or credit cards will charge you the same 2-3% unless they expressly say so.  maybe if she deposits more money or gives them more business, they’ll waive it or lower her fee to the “preferred” rate.

    I’d like to say that my bank once charged me some fee for having more than 5 ACH transfers a month on my account, and I contacted their customer service asking them to show me the section of their website describing the policy.  they said it’s “federal law” (vaguely true if you research it, but the fee part was completely their doing).  and also said I had to go in the bank to dispute it, and the girl went in the back and found some disclosure booklet and gave it to me.  I demanded she show me that, or the fee schedule which describes it and she went through every page and couldn’t find one reference to it.   now that’s a scam.  they reluctantly waived the fee “one time”.

  • brianguy

    oh c’mon, almost anyone could predict this company clearly based in Singapore would charge them from…Singapore.  no big shocker.  sure they may have a counter in the airport, but tell me in what city and highrise where their HQ in the USA is located?

  • Elmo Clarity

    The real issue with these fees is when you pay for something advertised in USD, pay for it in USD, and then get hit with a foreign transaction fee.  If a company is going to process the change outside of the US, they need to tell the person placing the order *BEFORE* and not after.  

    But there are some cases where I feel it really crosses the line.  In my case, I placed an order in the US with a US company but for some strange reason, they sent the order to the UK for processing so I got hit with the fee!  I contacted the bank about it and they pointed to the merchant and the merchant pointed back to the bank.  Needless to say, I didn’t get the money back and I terminated my dealings with that company.

  • brianguy

    yes, but charging a straight % fee, and OVERcharging are not the same concept.  she seems to be complaining about the charging.  granted 3% is a little higher than most, but she should’ve checked that in advance.

  • brianguy

    if only it were the merchant that charged the fee, that would make perfect sense.

  • Elmo Clarity

    In regards to your ACH fee, if it was a savings account, there are federal laws that limit the number of withdrawals to 6 a month.  I don’t know if the law requires a fee be assessed, but I know in reading the disclosure on the account that they would charge the fee and/or close the account.

  • Elmo Clarity

    The *MERCHANT* is the one that decides *WHERE* the charge will be processed.  If the *MERCHANT* is selling in the US charging USD, they should disclose that it will be processed outside the US.  While it is not the merchant charging the fee, they can disclose where it will be processed so the consumer knows if a fee will be charged or not.

  • brianguy

    yes that’s it, 6, I mistakenly said 5.  and no the law doesn’t require a fee to be assessed, which I researched and alluded to above, the bank chooses how to “comply with” such a law.  they can put a hold on your account, close it, or any such thing they choose.  the more together banks will send you an email warning or automated phone call to warn you in advance.

    mine decided on an undisclosed fee, I gave them 2 opportunities to show me the disclosure and they still couldn’t, even in the complete disclosure booklet I was handed, which didn’t contain it.  their answer:  ”it’s here somewhere!”.  seriously?  this was a couple of years ago, but still.  it’s not 1985, maybe get a computer network that will help you keep track of things.

  • brianguy

    yep, and if the merchant had a true presence in U.S. they probably would.  said presence also opens them up to being accountable to a whole separate set of tax laws and accounting rules, for example.

  • Martindspence

     Yes, I agree, having just experienced this with British Airways USA (booked via their New York Office). Even when I called up BA afterwards to clarify, they assured me no money ever left the USA (even though Bank of America say it was “processed” in London, despite admitting the merchant was in the USA). I’m sure if I’d have called them before making the transaction they’d have said the same thing.

     The real problem is that there is really no way of asking the merchant where they will “process” the fee as no-one you talk to in customer service knows this answer with any accuracy – someone taking your money in New York puts it into the computer and it just gets whizzed around the world without anyone but some back-room IT and finance people really knowing what happens.

    So, yes, it needs merchants to realize this is a problem AND either go after the credit card companies or explain to customers their processing policies. After all, it’s not in the merchant’s interest either to have consumers annoyed at getting landed with a large foreign transaction fee (and in my case Bank of America actually told me it was British Airways fee at first, which I know is untrue, but still – merchants surely ought to take an interest in other companies bad-mouthing them). Nor is it in the merchant’s interest to have invested lots in setting up an overseas office, an overseas currency account, an overseas sales team and then consumers realising they are still treated “foreign” and thus avoiding their company in favor of other domestic ones (e.g. the USAir flight might have ended up cheaper than the BA one in the end had I known of the card fee on BA).

  • Jack

    I had the same thing happen when booking flights on Aer Lingus. Price was quoted in US dollars but a foreign transaction fee showed up on my CitiBank MasterCard. After speaking with a supervisor at CitiBank my account was credited the amount of the fee.

  • Anonymous

    There is a foreign transaction fee that is passed through to financial institutions from the card processor. I work at a credit union and we just pass the fees along, We don’t assess addition fees. My advice – JOIN A CREDIT UNION! 

  • sterlinghawk

    I just went through this with BECU after purchasing tickets through BA. I contacted both parties. BA said that US citizens purchase tickets on US servers. BECU said they would not help me however BA is going to refund the fee. I offered a solution to BA to disclose this somewhere on their website so others can send the information to their credit card companies

  • sterlinghawk

    I am with a credit union credit card and that did not help. It was pure stupidity on the credit union credit card to not understand what is going on

  • sterlinghawk

    British Airways needs to disclose on their website that their servers for US citizens purchasing tickets sit in the US

  • sterlinghawk

    So true Elmo and you are spot on. It is up to the Merchant to disclose this on their website and furthermore disclose so we/customers can bring it to the attention of our credit card companies

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