Networks Propose Settlement In Currency-Conversion Case

  Visa Inc., MasterCard Worldwide and Citigroup’s Diners Club are close to settling a $336 million federal class-action lawsuit alleging the card networks hid foreign-currency conversion fees from consumers.
  The proposed settlement would provide refunds to consumers who made purchases overseas using the brands’ cards between Feb. 1, 1996, and Nov. 8, 2006. The networks also would reword their currency-conversion fee disclosure statements.
  Diners Club is involved because it processed its transactions during the first half of the 10-year period using a proprietary network. It began processing its transactions over the MasterCard network in 2004.
  The lawsuit alleges the card networks and their member banks conspired to set and hide the price of foreign-currency conversion fees, typically 1% to 3% of the transaction amount, and that Visa and MasterCard inflated their base exchange rates before applying the fees. The defendants deny the claims.
  Related claims in the consolidated case against Bank of America Corp., JPMorgan Chase & Co., HSBC and Washington Mutual would be dropped if the U.S. District Court for the Southern District of New York approves the settlement. As part of the proposed settlement, some 45 million U.S. households whose family members may have traveled abroad in the past decade received refund forms in the mail late last year. Cardholders have until May 30 to request a refund.
  More than 40 law firms participated in the lawsuit and would receive an estimated $86 million in fees as part of the settlement.
  The district court has scheduled a March 31 hearing to consider final approval of the settlement.
  The currency-conversion fees vary widely. Visa and MasterCard charge 1% of the converted amount, which many issuers pass on to customers with an additional surcharge. Chase, BofA, Citibank, Fifth Third Bank and Wells Fargo & Co. each add 2% to the Visa or MasterCard fee.
  American Express Co. bases its fees for foreign-currency transactions on the interbank rate plus 2%. Washington Mutual and Wachovia merely pass along the 1% fee established by Visa or MasterCard without assessing an additional surcharge.
  Capital One Financial Corp. offers free foreign-currency conversion services to its customers. Discover Financial Services also charges no fee.
  In Europe, some payment-technology companies are promoting “dynamic” currency-conversion services that fix the final transaction and its fee in the customer’s home currency at the time of the transaction. Depending on local card-network rules, the fees may result in new revenue for merchant acquirers and processors.
  Travelex, a London-based currency-conversion specialist, recently adopted dynamic currency exchange in ATMs in Europe. It plans to expand the service around the world.
  â€œDynamic currency conversion is a growth area for merchant acquirers in many markets,” says Andrew Marshman, executive vice president for business development in central and eastern Europe for Atlanta-based S1 Corp.’s Postilion division, which develops software for dynamic currency conversion applications.
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