A series of lawsuits against Visa International, MasterCard International, and several large credit card issuers allege that consumers who use their credit cards abroad are surreptitiously being charged currency conversion fees, in violation of the Truth-in-Lending Act and federal antitrust laws.
The New York law firm Milberg Weiss Bershad Hynes & Lerach LLP, along with Schrag & Baum PC of Berkeley, Calif., filed the first suit last year in U.S. District Court in the Northern District of California. Milberg Weiss filed a similar suit in Manhattan federal court April 30, and says it plans to continue filing in different jurisdictions to build a case for a class action. Other lawsuits have been filed in California state court and, by a different law firm, in Pennsylvania.
The suits describe the practice of both Visa and MasterCard, of adding a 1% fee to purchases made in foreign currencies when those purchases are converted to dollars. The suit filed in Manhattan calls the 1% fee an unlawful conspiracy between the two associations and member banks to fix the fee at an artificially high rate.
The suit also seeks relief for the defendants banks failure to disclose, as required by the Truth-in-Lending Act, the first-tier currency conversion fee and additional second-tier fee superimposed by the defendant banks on charges associated with general purpose and debit cards. The institutions named as defendants in the latest suit are Citibank NA, Bank of America Corp., Bank One Corp., J.P. Morgan Chase & Co., Providian Financial Corp., and Household International Inc.
The 1% fee charged by the card associations, as well as additional fees charged by banks, are typically folded into the transaction amount on the customers statement and are not disclosed as fees, according to the New York lawsuit.
If you want to issue me a credit card, you can charge $100 a year or nothing, said Thomas F. Schrag, a partner with Schrag & Baum. But that is clearly disclosed, and I have the choice. But if you buy a $100 hat in France and they convert that, it becomes $101; you never see that 1% fee.
A Visa International spokesman said the fee has been charged to banks for 13 years, and Visa does not consider it a customer charge. He said banks can choose whether or not to pass the fee on to customers, and whether to add a separate fee of their own.
Mr. Schrag called Visas claim that the fee is charged to banks, which are free to absorb the cost or not, a total fiction.
There is no bank in the U.S. that does not charge the 1% fee, he said. I defy you to pull out your cardholder agreement and see if you do not feel that Visa is charging it and not the bank.
A lawsuit filed Feb. 15, 2000, in California State Superior Court in Alameda County names a plaintiff, Adam A. Schwartz, and alleges that in the previous four years, Visa took in about $500 million in currency conversion fees, and MasterCard reaped about $200 million.
That suit against Visa and MasterCard said, there is no rational relationship between the additional cost to the defendants of a foreign card charge and the currency conversion fee defendants levy.
In response to that filing, a Visa spokesman said Visa is not alone in charging a fee for currency conversion; hotels and independent currency exchanges also do so, he said.