Lost in Translation

Foreign A.T.M. and credit-card transactions cost more than ever before, thanks to big new bank fees.

By Joe Brancatelli

Business travelers know firsthand how the once-almighty dollar has been humbled in world markets. That's because we become virtual paupers the minute we set foot outside the country.

The euro, worth just 85 cents in 2002, now commands $1.40. That means a 600-euro-a-night hotel in Paris costs $840 instead of $505. At two bucks to the British pound, just about everything in London now costs American business travelers twice what it does in New York or Los Angeles. Our currency has tanked even in formerly dollar-friendly places like Australia, New Zealand, and Canada.

So what have the big banks been doing as our buying power has shriveled? Raising their foreign-currency exchange fees, of course. Whenever you use a credit card in a foreign country or tap an A.T.M. to get local currency, chances are you're going to be paying a newly doubled or tripled charge to your bank or card issuer.

The amount of money we lose in translation is startling. The fees, which hardly existed a decade ago, may now be as high as 5 percent of every charge or A.T.M. withdrawal you make overseas.

Consider your credit card. For years, the so-called experts (including your friend here in seat 2B) considered credit cards the coin of the international-travel realm. They were easier to use than traveler's checks. They offered a better exchange rate than trading U.S. dollars for local currency. And unlike hard-cash currency exchange, which entailed many extra fees imposed by currency brokers, Visa or MasterCard assessed only a 1 percent transaction fee.

But then the card-issuing banks invented their own foreign-transaction fees. These so-called international service assessments were tacked on to the fee that Visa and MasterCard charge. Chase Bank credit cards, for example, now carry total foreign-exchange fees of as much as 3.5 percent. Citibank charges 3 percent; so does Bank of America. American Express? Not only does it charge a 2 percent foreign-currency transaction fee, but it has begun chipping away at the exchange rate. Instead of giving you the best rate when it converts overseas charges to U.S. dollars, it charges you the highest rate it can find.

Faced with this barrage of costs, many savvy business travelers had switched back to cash. But rather than change currency the old-fashioned way-at currency booths or hotel front desks-they hit A.T.M.'s and withdrew local currency from their checking and savings accounts. As long as the bank didn't impose a charge for using the machine, the transactions were virtually free. And why shouldn't they be? All you were doing was withdrawing your own money.

During a six-week assignment in Italy last year, I used my credit cards just once. I paid for everything else in euros, all withdrawn at an A.T.M. using my Citibank card. (In Italy, all A.T.M. transactions are free.) I withdrew about $10,000 from my accounts, got a decent exchange rate, and didn't pay Citibank a penny in fees.

But not anymore. At the end of last year, Citibank started charging customers a 3 percent fee for foreign-currency A.T.M. withdrawals. HSBC went to 3 percent in June. Last month, Wachovia customers began paying 2 percent on foreign A.T.M. withdrawals. These fees are roughly in line with the charges imposed by other large banks.

All these new fees are infuriating, but they spell opportunity for Capital One. Alone among major financial institutions, Capital One is fee-free on international transactions. Not only are the bank's credit cards free of Capital One surcharges, but the bank even eats the 1 percent fee charged by Visa and MasterCard. Its A.T.M. cards, which are tied to Capital One money-market and savings accounts, don't charge a fee for foreign-currency withdrawals.

"We're trying to be the no-hassle bank," Capital One spokeswoman Pam Girardo says, "and this is one obvious way to show people that we're not kidding."

Not interested in Capital One? Ask your financial institution about its premier banking packages. Some banks, Citibank and HSBC among them, exempt their top-level customers from international transaction fees. But others, like Chase, don't care: Everyone pays, regardless of the size of their banking relationship.

If you're really steamed by the big banks' attitude toward foreign-transaction fees, you could try traveling globally but banking locally. Local banks and credit unions often don't charge you for being an internationalist. Except for passing along the 1 percent Visa or MasterCard fee, many don't add additional charges to your overseas transactions.

The Fine Print
It's possible that you don't even know your financial institution is dinging you whenever you use plastic overseas. That's because the charges are buried in the fine-print disclosure forms that most people throw away without reading. And lots of luck finding the information on a financial institution's website: Most banks I checked don't publish their complete terms and conditions there.

Poorly disclosed foreign-currency fees have generated several class-action lawsuits. One has recently been settled, and you can apply for your share of the refund pool.

And there's a new scam aimed at international travelers called dynamic currency conversion. You flash your American-issued plastic, and the restaurant or retailer presents you a bill denominated in U.S. dollars rather than the local currency. What they don't tell you is that the exchange rate they use is usurious-and the retailers get a cut of the action. Make it simple: Never accept a U.S.-denominated credit-card tab overseas. It's a guaranteed rip-off.

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