Banks Are Exploiting A Loophole To Scam Customers With "Foreign Transaction Fees"
When a customer makes a purchase based in the country, usually with a foreign currency, the customer is charged a Foreign Transaction Fee, usually around 2% of the value of the transaction. This is a normal, expected fee.
However, a loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009 inadvertently lacks the regulation of these Foreign Transaction Fees. While the bill mentions strict regulation against Currency Exchange Fees, companies are now categorizing them as Foreign Transaction Fees, making them immune to the Act. This is now being exploited by companies such as Bank of America, CitiBank, and Discover Card, as well as some others that charge these fees.
Companies are now starting to charge these fees to customer's credit cards at inappropriate times for inexistent reasons when there is no reason that these fees should be posted.
The purpose of the Currency Exchange Fee is to cover the bank's cost of converting foreign currency into the native currency, such as a transaction in Euros into Dollars.
However, banks are taking advantage of this new categorization by charging fees on out-of-country purchases charged in the native currency, citing that they are "foreign purchases." Despite that the bank had no role in converting the currency nor suffered financial penalty, the fee still applied as it was a foreign purchase.
Furthermore, banks are now charging customers Foreign Transaction Fees on US-based purchases. From the blog of Christopher Elliott, a CitiBank customer purchased Qatar Airways tickets through Expedia, a US-based company. The tickets were processed through Qatar's US-based office. Yet, CitiBank still charged the customer a $44 Foreign Transaction Fee, simply on the premise that Qatar Airways is based in a foreign country.
This is the scam that has the potential to impact all of us, customers that use these cards. Even if the purchase was made in the US with US-based divisions and processed in the US, if the parent company is foreign, they will still charge Foreign Transaction Fees, which they will absolutely refuse to remove. And they can legally get away with this now, through this loophole in the Credit Card Accountability Responsibility and Disclosure Act of 2009.