Court Orders MasterCard, Visa To Refund Currency Conversion Fee

MasterCard and Visa have been deceptive in their foreign currency conversion disclosure process, according to California Superior Court Judge Ronald Sabraw, who yesterday ordered the two card networks and their issuing banks to disclose these fees to cardholders in agreements, applications, solicitations and monthly billing statements.

Visa and MasterCard currently mandate the disclosure of these conversion fees solely in cardholder agreements. MasterCard said that before changing this disclosure process it plans on challenging the decision with an appeal. Visa issued a statement saying it too is appealing.

"Judge Sabraw's decision regarding deception is seriously flawed in terms of both fact and law, and we believe we have strong legal arguments to have it overturned on appeal," said Noah Hanft, MasterCard general counsel. "It's illogical for him to say we somehow deceived American consumers by providing them what he agrees are the best possible rates for currency conversion."

When travelers make purchases overseas with Visa or MasterCard, the card networks charge a foreign-currency conversion rate plus a 1 percent fee to issuing banks. The banks then pass on the charge to cardholders.

Despite the fee, charge cards are considered to offer the best currency conversion rates throughout the world. "Bottom line: What you get on your credit cards on conversion rates are much, much better than you would get otherwise, whether you convert money here or wherever you're traveling," said David Hillman, president of Hillman and Associates, a New York-based consultancy.

In his ruling, Judge Sabraw said both issuers are ordered to refund the 1 percent currency conversion fee to cardholders.

While the ruling applies to both card networks, the ruling against Visa applies to all cardholders--since Visa is headquartered in California--while MasterCard only would have to change the currency conversion disclosure process and pay restitution to cardholders in California. The ruling orders the card companies to reimburse the 1 percent currency conversion fee charged to customers from Feb. 15, 1996, to the present.

California resident Adam Schwartz in early 2000 filed the initial action against Visa and MasterCard on behalf of the general public. Since then, plaintiffs said that Visa and MasterCard violated truth-in-lending laws, charged excessive fees and that the fees were not adequately disclosed. Judge Sabraw found the card networks' practices to be lawful on the first two counts but ruled against Visa and MasterCard on account of "deceptive" disclosure practices. If the ruling stands, the two payment networks may have to refund an estimated aggregate of $800 million to cardholders.