Minimizing transaction fees

Julee Roth raises an important issue about the recent changes in banks, credit cards, ATMs and foreign currency transactions and the new fees (Dec. ’06, pg. 12).

Regarding currency transactions, two bad things happened on our visit to Tuscany in September-October ’04. Hertz processed our Italian rental car transaction in U.S. dollars instead of euros, at an unfavorable exchange rate. They called it “Dynamic Conversion,” claiming that it was for our “benefit.” When I asked that the charge instead be processed in euros, the desk clerk suddenly lost his ability to speak English.

When we returned home and got our credit card statement, our ATM and Visa transactions included what appeared to be a four percent conversion charge. We discovered that our bank had sold their credit card business to MBNA, which added their own three percent conversion fee to the normal one percent that Visa’s network (PLUS) has historically charged to do the conversion and process the transaction.

In February ’06, while arranging a 10-day fly-drive to Nova Scotia, we investigated and found that some things had not changed. Visa’s money transfer network (PLUS) and that of MasterCard/Maestro (Cirrus), after the recent lawsuit settlements, continue to charge a one percent agio (currency-exchanging fee) to process and convert credit card charges and ATM/debit card withdrawals at the favorable wholesale exchange rates. Look on the backs of your cards and you should see the logos of either or both.

What has changed is that all of the major credit card issuers and big banks that we surveyed (except for Capital One) now add an additional one to three percent of their own to the regular PLUS/Cirrus fee. Read the mice-type disclosure statement that came with your card. At my branch of a big regional bank, a manager had no explanation why. Nor could she explain why, with no national credit card involved, the bank was adding a three percent charge on non-U.S. ATM draws.

We also learned, as did Julee, that many credit unions and hometown banks contract out their credit card services and so can determine their own terms. We now have a MasterCard from a credit union down the street and a Visa card from a nearby local bank, both of which charge only the PLUS/Cirrus one percent agio, clearly disclosed on their monthly credit card statements.

So, too, with the ATM cards. We do not carry debit cards. ATM cards require a PIN; debit cards do not. Thus, if you should lose your debit card, a perp easily could empty your checking account — an unpleasant revelation when you are 8,000 miles from home. Banks like debit cards because the fees are larger. The bank person will pout, but if you dig in your heels she will issue you an ATM card.

Credit unions and small local banks offset the competitive disadvantage of having only a handful of ATMs by agreeing to absorb any fees occasioned when you use another bank’s ATM (anywhere in the world, in the case of my new bank and credit union). And the only add-on is the customary PLUS/Cirrus one percent foreign exchange conversion fee.

The lesson here is to shop around.

Julee is correct about cash advances on a credit card anywhere. These are considered to be loans, and the interest accrual begins immediately. Plus insult is added to injury by the one to three percent that the big banks and issuers add to the foreign currency conversion charge.

Dynamic Conversion is another issue that we’ve found no answer for. The PLUS/Cirrus rules allow you to refuse it, but the practicalities often are otherwise. I would be grateful to other ITN readers with suggestions on how to deal with Dynamic Conversion when confronted by it.

JERRY YARES

Maryville, TN