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A foreign transaction fee is charged by banks when purchases are made outside of the United States.
However, these international transaction fees may also be applied to purchases made in the United States but on websites based in foreign countries.
While this second type of fee isn’t illegal, some consumers have allegedly found they were charged a foreign transaction fee despite language in their banks’ contract disallowing them to apply such a charge.
What Are Foreign Transaction Fees?
Foreign transaction fees are placed on purchases made using a credit or debit card in a country other than the U.S. Ostensibly, this charge is meant to compensate the purchaser’s bank for converting the funds into a foreign currency.
These fees are often percentage-based and are common on most cards. Exceptions may be made for purchases made in nearby countries, such as Canada or Mexico. Some card companies, such as Capital One and Discover, don’t charge a foreign transaction fee at all.
A typical foreign transaction fee ranges from 1 percent and 3 percent of the purchase price. For example, Central Pacific Bank charges a 2 perent fee.
A portion of the fee is given to the payment processor, such as Visa or Mastercard, while the rest goes to the entity that issued the card. One to 3 percent may not seem like a significant amount, but these kinds of fees can add up quickly. International trips often cost a considerable amount of money, and each transaction may incur a fee.
Are Foreign Transaction Fees the Same as Currency Conversion Fees?
Foreign transaction fees and currency conversion fees, though their names sound similar, are not the same thing.
Currency conversion fees are a type of charge tacked on to a transaction by a foreign merchant, though the amount of the fee is calculated by your card payment processor, according to Investopedia. These fees cover the cost of converting foreign currency into dollars.
Foreign transaction fees, on the other hand, are charged by the cardholder’s bank for transactions placed in a foreign currency, most often overseas, according to Investopedia.
Currency conversion fees are often wrapped up within a larger foreign transaction fee.
When Do Foreign Transaction Fees Apply to Online Purchases?
A foreign transaction fee is applied to any purchase made from a merchant based outside the U.S., according to WalletHub — specifically including online purchases.
This means if a consumer purchases an item from a company based in Germany, for example, they may be charged a fee even if they made the purchase from the U.S. If the site they’re shopping on lists prices in a currency other than the U.S. dollar, a fee is likely.
A foreign transaction fee may also be charged if a consumer purchases an item from a foreign seller on a U.S. website.
If the consumer purchases an item on Amazon, but that item is being sold by someone in China, a fee may be charged.
Similarly, if they purchase airline tickets from a foreign airline, the purchase may incur foreign transaction fee.
Foreign transaction fees are not what they used to be.
About a decade ago, only transactions that took place on foreign soil earned a foreign transaction fee, according to Value Penguin. Now, technological advances have allowed customers to more easily do business with companies around the world.
In light of this development, purchases incur a foreign transaction fee if they merely pass through a foreign bank, as in the instances described above, even if they do not occur on foreign soil.
How to Avoid a Foreign Transaction Fee
The most effective way to avoid a foreign transaction fee is to simply use cards that don’t charge those fees when purchasing items from a foreign source. While foreign transaction fees are common, it is possible to find card issuers who don’t use them.
Consumers should familiarize themselves with the terms and conditions of the card they’ll be using while traveling in order to determine what fees they can expect. This will help them shape the choices they make about when to withdraw money and use cash.
If the traveler has the opportunity, they can seek a different card prior to travel that don’t charge these fees.
Chase, Capital One, and Discover offer foreign transaction fee-free cards, according to SmartAsset. These cards can not only protect consumers from foreign transaction fees abroad, but they can help save money at home — they will also not incur a fee if they are used to make purchases from foreign sellers on U.S. sites.
Charges such as foreign transaction fees may be hard to spot. This means many customers may be charged these fees without their knowledge.
Fees such as foreign transaction fees are often hidden in contracts and information provided by the cardholder’s bank, according to Value Penguin.
Customers have accused banks of using a range of fees to make money improperly off of their customers. Misleading customers about the nature of fees like foreign transaction fees may be one way in which banks can maximize their profits. Perhaps more commonly, banks may just rely on customers not reading the fine print when signing up for an account.
Value Penguin encourages customers to go in informed, advising individuals to look out for these fees when they are creating their accounts. Reportedly, these fees are sometimes disclosed in a section of your account information called “Pricing and Information.”
Even if consumers understand the fees when signing up for an account, such fees can still sneak up. Sometimes, fees are labeled with confusing names on bank statements, making them hard to spot after the cardholder has already been charged. For example, these fees may be labeled as an “FX fee” on a statement.
Another way to avoid incurring these fees while traveling is to simply exchange any needed currency beforehand. Consumers should create a budget for their trip so they can estimate how much money they will need, then acquire that amount in the appropriate foreign currency or currencies.
However, consumers should be aware pickpocketing may be a risk, so they should ensure their cash is kept in a safe place on their person.
Finally, consumers may find their bank has a foreign partner whose ATMs you can use to access foreign currency.
For example, account holders with Bank of America can withdraw money from a Deutsche Bank ATM without paying a fee for using an ATM outside of the bank’s system. However, it is possible these ATMs will still apply a fee for the exchange in currency.
Are These Fees Legal?
While foreign transaction fees aren’t illegal, they may come into conflict with the bank’s own contracts and agreements with account holders. Some banks aren’t allowed by their contracts to charge these kinds of fees.
Some consumers have chosen to file a class action lawsuits against institutions they claim unlawfully charged them a foreign transaction fee or fees. These consumers’ main contention comes from fees placed on purchases made on foreign websites while the consumer was in the U.S.
One of these foreign transaction fee class action lawsuits was filed by a group of customers against Citibank, one of the largest retail banks in the United States. Citibank charges a 3 percent foreign transaction fee for customers with debit cards, though some of their larger accounts can avoid these fees, and some of their travel credit cards waive these fees, as well.
Plaintiff David Sponheim filed his Citibank class action lawsuit in February 2019, alleging Citibank violates its own contracts by charging hidden foreign transaction fees on online purchases.
According to Sponheim, Citibank’s account information sheets specify its customers “will not be charged a fee unless they are using the Citibank Banking Card ‘outside of the U.S.’” Sponheim argues reasonable people would interpret this as applying to purchases made while in a foreign country, not online purchases made through a foreign merchant.
Another class action lawsuit was filed against Navy Federal Credit Union (NFCU) in August 2020 over a similar issue: charging a foreign transaction fee on an online purchase made through an overseas merchant. The plaintiff, Siobhan Morrow, says she made a purchase from her San Diego home through an online retailer based in Cyprus, but says she wasn’t aware at the time that the company was outside the U.S.
The purchase only incurred a 1 percent fee, but Morrow claims NFCU’s provisions do not include any mention of fees on online purchases made from overseas merchants while in the U.S., and only addresses purchases made while physically out of the country.
Should You File a Foreign Transaction Fee Lawsuit?
Legal action may be taken if a consumer feels they have been wrongfully charged one of these fees on an online purchase.
It is possible future plaintiffs may be awarded not only a refund of the fee they were charged, but also damages for any violations their bank may have made.
Some banks may be charging illegal fees, and you may be eligible for compensation.
If you were charged a foreign transaction fee on a purchase you made from within the U.S. through a foreign website, you may be able to join this class action lawsuit investigation and pursue compensation.
Filing a lawsuit can be a daunting prospect, so Top Class Actions has laid the groundwork for you by connecting you with an experienced attorney. Consulting an attorney can help you determine if you have a claim, navigate the complexity of litigation, and maximize your potential compensation.
As an expert in finance and consumer rights, I bring a wealth of knowledge to shed light on the intricacies of foreign transaction fees and the legal landscape surrounding them. My expertise is grounded in a deep understanding of banking practices, financial regulations, and the dynamics of class action lawsuits related to consumer protection.
The article you provided addresses the issue of foreign transaction fees, a topic I am well-versed in. It begins by explaining that Top Class Actions's website and social media posts utilize affiliate links, a common practice in online marketing. The disclaimer clarifies that the use of affiliate links may result in a commission without additional charges to the consumer.
The main focus of the article is on foreign transaction fees charged by banks, particularly when consumers make purchases outside the United States or on foreign-based websites. It highlights that some consumers have reported being charged foreign transaction fees despite language in their banks' contracts seemingly disallowing such charges. This discrepancy forms the basis for potential legal action, leading to class action lawsuits against institutions accused of unlawfully imposing these fees.
The article defines foreign transaction fees as charges applied to credit or debit card purchases made in a country other than the U.S. The fees are intended to compensate the purchaser's bank for currency conversion. It notes that while common, some card companies like Capital One and Discover do not charge foreign transaction fees.
Crucially, the article clarifies the distinction between foreign transaction fees and currency conversion fees. Currency conversion fees are charges imposed by foreign merchants for converting foreign currency into dollars, whereas foreign transaction fees are levied by the cardholder's bank for transactions in foreign currencies, typically overseas.
The circ*mstances under which foreign transaction fees apply to online purchases are outlined, emphasizing that such fees can be incurred when buying from foreign-based merchants, even on U.S. websites. The article provides examples, such as purchasing from a foreign seller on Amazon or buying airline tickets from a foreign airline.
To help consumers avoid these fees, the article suggests using cards that do not charge foreign transaction fees. Chase, Capital One, and Discover are recommended as issuers offering fee-free cards. It also advises consumers to be vigilant, as fees may be hidden in contracts and statements. Additionally, the article provides tips on budgeting and currency exchange to mitigate the impact of foreign transaction fees during travel.
The legality of foreign transaction fees is addressed, with the article noting that while these fees are not inherently illegal, they may conflict with banks' contracts. This conflict has led to class action lawsuits, such as the ones against Citibank and Navy Federal Credit Union, where consumers allege hidden fees on online purchases made within the U.S.
The article concludes by suggesting that consumers who believe they were wrongfully charged a foreign transaction fee on an online purchase may consider legal action. It emphasizes the potential for compensation and directs readers to Top Class Actions for assistance in connecting with experienced attorneys to explore their claims.
In summary, this article comprehensively covers the concepts of foreign transaction fees, their application to online purchases, ways to avoid them, and the legal implications and recourse available to consumers.
