Visa U.S.A. and MasterCard International, which are appealing a court order to refund credit card currency conversion fees, now face a similar lawsuit over debit cards.
Last year the payment card companies lost a suit in California state court that challenged their 1% fee for converting transactions using foreign currencies. That put them on the hook to refund as much as $1 billion to cardholders.
A new suit, filed last week in the same Alameda County court by the same firm that represented cardholders in the earlier case, challenges the Visa and MasterCard currency conversion fees on debit cards.
The complaint alleges that since the early 1990s, Visa U.S.A., Visa International, and MasterCard have "levied a hidden charge on consumers and businesses using Visa and MasterCard debit cards to charge goods and services and withdraw cash from automated teller machines in foreign countries." The 1% charge, it says, is "a hidden transaction fee imposed by defendants for the mere use of a debit card."
Schrag & Baum PC of Berkeley, Calif., is seeking class-action status, which the earlier credit card case was granted. Jim Baum, a partner with the firm, said the debit card suit covers the same ground as the earlier one. In that case Judge Ronald M. Sabraw instructed Visa and MasterCard to present a plan for refunding fees they charged to U.S. cardholders who made international purchases.
American Express Co. is facing similar lawsuits over its own 2% currency conversion fee. It has a $66 million settlement offer pending in U.S. District Court in Miami concerning roughly 10 suits. Those discussions hit a snag last week when the presiding judge, Ursula Ungaro-Benages, recused herself because as an Amex cardholder she might be eligible to collect payments under the settlement.
Mr. Baum said that after the credit card suits were filed, starting in 1998, most U.S. issuers began disclosing on cardholder statements bank-established currency conversion fees, which are not at issue in the current cases. Visa's and MasterCard's separate fees are typically still folded into the transaction amount, he said.
Banks' separate itemization of their fees confuses cardholders, who would presume that the Visa and MasterCard fees are included, Mr. Baum said. "Now, you get your bill and you see a $100 charge at a Paris store, and underneath it will disclose the $2 bank fee," he said. "There is no reason for you as a cardholder to suspect another 1% fee has been added on. It is even more misleading."
The debit card suit asks that Visa and MasterCard be required to refund the 1% charge on all foreign debit card purchases since May 10, 2000, plus "a reasonable rate of interest." It also asks that the companies be required to itemize the fees charged for each purchase or billing cycle.
Mr. Baum predicted that the lawsuits and consumer dissatisfaction will eventually result in Visa's doing away with the fee or charging it to banks. "I guess that the bank will not pass it on and the whole thing will be driven down to virtually nothing," he said.
A MasterCard spokeswoman said the company had not yet seen the suit. A Visa spokeswoman, Rhonda Bentz, said Visa will fight it. Using a payment card for foreign purchases is still the best deal for consumers, she said. "The judge even acknowledged it was the best deal around."
