A lawsuit over the 1% currency conversion fee that Visa U.S.A. and MasterCard International impose on U.S. consumers who buy goods in foreign countries moved a step closer to trial when a California Superior Court judge denied a motion for summary judgment.

Thomas Schrag and James S. Baum of the Berkeley, Calif., law firm Schrag & Baum, who represent plaintiff Adam A. Schwartz, said they are just getting geared up for the battle, which they expect to be lengthy.

“It’s always the same” when Visa goes to court, Mr. Schrag said. “Delay, delay, delay, defend, defend, defend. Concede nothing, make the plaintiff jump through hoops, and make them spend time and money.”

A Visa statement issued by vice president Kelly Presta pointed out that Visa still offers a better currency conversion rate than consumers could get on their own. “Visa sells currency at wholesale rates plus 1% to its members,” the statement said. “Ultimately, Visa’s issuing banks determine the currency conversion transaction rate provided to the cardholder.”

At the heart of the case is a 1% fee charged by San Francisco-based Visa and Purchase, N.Y.-based MasterCard for purchases cardholders make overseas. The fee is added to the transaction amount when it is converted from foreign currency to U.S. dollars. Mr. Baum estimated that the two associations together have charged more than $1 billion in such fees in the past five years and that the fees provide more than 25% of Visa’s revenues.

The plaintiff alleges that the 1% fee is charged to cardholders by the associations and is not properly disclosed. Visa and MasterCard counter that the fee is charged by the associations to the issuing banks, not to consumers, and that banks are free to pass along the charge or not. The fee, says Visa, is disclosed in the cardholder agreement.

The suit says that every bank the plaintiff knows of passes along the charge. Many banks add their own, separate fees, Mr. Schrag said. The suit charges that the lack of proper disclosure of the fee violates the Truth-in-Lending Act and separate California laws regarding fee disclosures.

“MasterCard as an entity does not have a relationship with cardholders,” said Eileen Simon, vice president and senior counsel for the association. “Our relationship is with member banks.”

Mr. Schrag and Mr. Baum said they are prepared for a long fight. Since their firm took up the case in 1999, they have spent hundreds of hours researching the topic and learning the intricacies of Visa’s and MasterCard’s structures.

The two have had a personal injury law practice together since 1975. Since winning a big lawsuit against Kaiser Hospital in the 1980s, the two-person firm has been able to pick and choose its cases. Typically, the law partners, who call themselves best friends and live near each other, work on only one case at a time. They are comfortable immersing themselves in a complex case — in this instance, unraveling the relationships among the card associations, member issuers, and cardholders — though they have never taken on a financial services suit before. “There is an incredible amount of work if we are going to get ready for a trial,” Mr. Schrag said. “It is gargantuan, and it is a question of presenting it in a way that makes it simple.”

The firm has worked with consultants who are insiders in the card industry, Mr. Baum said. Their names will be kept confidential until the case comes to trial, he said, when the experts must testify.

In spite of the widely publicized Justice Department suit against Visa and MasterCard, Mr. Schrag said his suit has nothing to do with piling on to vulnerable card associations. It covers ground the Justice Department’s suit does not, he said.

“We looked into what they had looked at and found to our satisfaction that they had not looked into the currency conversion fee,” Mr. Schrag said. “Based on that, we went forward. If we determined that the price-fixing charges included the currency conversion fee, I am not sure we would have proceeded, but it turned out it was not part of that lawsuit.”

Though the firm is able to support itself on one case at a time, the expense of running up against the card associations prompted the lawyers to get some help. As they prepared to file suit, they asked the class-action colossus Milberg Weiss Bershad Hynes & Lerach LLP of New York to come on board.

“They have the resources it takes — bodies to throw on the line — they are available,” he said. “They are the premier class-action firm in the country.”

Both Visa and MasterCard agree that cardholders are charged the 1%, though both hesitate to call it a fee. “It is not a charge,” said Ms. Simon of MasterCard. “It is the way we arrive at an appropriate exchange rate.”

During a court hearing last month in which the plaintiff’s lawyers vainly asked Judge Ronald M. Sabraw to grant a motion for summary judgment, requiring Visa to begin disclosing the fee, the judge questioned both sides on whether Visa or the issuing banks charge the fee.

“You mean, for example, Fremont Bank, a place where I do business and hold a Visa card, if Fremont Bank decided that they were going to not pass on the 1% currency conversion fee in order to entice me to be a cardholder to Fremont Bank, that Visa could override that and require Fremont Bank to assess the fee?” asked Judge Sabraw.

“Fremont Bank could not decide not to charge you the 1%,” answered Mr. Baum.

Not only do the associations charge the fee without proper disclosure, Mr. Baum said, they do not even incur costs in converting money. “They talk about converting currency, but that is not happening,” he said. “They move money around to net out transactions. If the number of Americans spending money in France is similar to French spending in the U.S., the difference in money spent may be a small fraction of the gross amount.”

Both sides are due back in court June 29 to hear a motion filed by Visa to delay hearing the case until a companion suit in U.S. District Court in New York can be heard.

“The California case is so simple, we can be in trial and complete it by fall 2001,” Mr. Baum said. But Visa uses “the Asia strategy of defending” a case, he said. “Back up slowly and hope the Russian winter does your work for you.”

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