The Brancatelli File



April 7, 2005 -- Let's not talk about the lying, thieving Big Six this week. Let's talk instead about the lying, thieving bankers who issue our credit and charge cards and banking and debit cards.

You've undoubtedly gotten a blizzard of so-called disclosure statements from your credit cards and banks lately. You know the stuff I mean: Pages and pages and pages stuffed into your credit-card bill or checking-account statement. Thousands and thousands of lines of tiny type written in legalese so dense that you can be sure that the lawyers' eyes were glazing over even as they were writing the gobbledygook.

You know what I know: Good news from banks never comes in tiny type in little disclosure statements. But you probably do what I do: Ignore the damned things, toss them in your junk drawer and forget about them until the bank sends out a new disclosure statement filled with thousands and thousands of lines of tiny-type legalese.

This time, however, I think you would be well served to try and make some sense of the hideous things. Why? The banks and credit card companies are making another egregious profit grab whenever we head overseas.

If you use your credit or charge card to pay for a hotel room or a restaurant meal overseas, they're gonna be in your pocket. If you use your bank card to get cash at an ATM overseas, they're gonna be in your pocket. And the new disclosure statements, in short, disclose this: They are gonna get deeper--much deeper--into your pocket than ever before.

Let me explain, in as clear and non-somnambulant language as humanly possible, what is happening whenever you slap down a piece of U.S.-issued plastic overseas.

It has been an article of faith that the best and most cost-effective way for Americans to get foreign currency was via an automated-teller machine overseas. Why? Because the transaction that converted your U.S.-denominated funds into local currency was calculated at the so-called inter-bank wholesale rate. And that rate was between 2 and 10 percent better than the so-called retail rate you got if you went into the bank or a currency-exchange kiosk with a fistful of dollars and traded them for local notes.

Of course, the caveat was always the fee that your bank may have imposed on your use of an overseas ATM. Some financial institutions now charge as much as $5 every time you dip your banking card into an ATM on the Old Brompton Road in London or the Ginza in Tokyo.

Now here's the last bit of good news you're gonna read in this column: If you're a frequent flyer who gets to travel overseas, you probably keep enough funds in your bank to have the clout you need to call your branch manager and demand a waiver of this fee. In fact, elite-level accounts at many banks offer fee-free overseas ATM usage. Make sure you've got such an account. And if your bank doesn't offer a fee-free overseas ATM arrangement and won't waive your fees, you're with the wrong bank. Start shopping around.

Sadly, however, the ATM game doesn't end here. Some banks are beginning to add a currency-exchange fee of 1 to 3 percent on the wholesale rate. And than there's this: If your bank has recently turned your banking card into a MasterCard or Visa debit card, you may be paying an additional 1 percent fee that is imposed by those credit-card associations. You may also pay the 1 percent fee if the ATM transaction is cleared through Cirrus or Plus, the ATM networks controlled by MasterCard and Visa.

If you think this ATM issue is convoluted, you're gonna hate what comes next: A flurry of new fees that banks and credit-card companies are imposing every time we whip out our plastic for an overseas charge.

Once again, we start with an article of faith: Assuming that you're paying your balances in full each month and not paying interest, using a MasterCard, Visa, American Express or Diners Club card is the best way to make overseas purchases. Why? The wholesale rate that banks use for converting overseas credit-card transactions into U.S. dollar charges on your monthly statement.

Traditionally, the wholesale rate you got was diluted by 1 percent, which was the foreign-currency transaction fee that MasterCard and Visa imposed on each charge made in local currencies. American Express and Diners Club charged 2 percent whenever you paid a bill overseas.

In recent years, however, the banks that issue MasterCards and Visa cards began imposing their own foreign-currency transaction fees, too. Generally speaking, the extra fees are 2 or 3 percent in addition to the 1 percent fee imposed by MasterCard and Visa. There were a few credit-card issuers that did not impose their own transaction fees, most notably MBNA. But MBNA recently announced its own 2 percent charge. That means MBNA-issued cards now clip you for 3 percent whenever you charge a purchase overseas. Cards issued by Citigroup, BankOne and Chase also impose a total currency charge of 3 percent. (Diners Club, which is owned by Citigroup, has moved to 3 percent, too.)

These bank-level add-ons have always been rip-offs, pure drop-to-the-bottom-line profit, because any costs associated with a currency transaction were more than covered by that 1 percent MasterCard and Visa fee. Lest you think we're talking pennies here, consider this: If you run up a hotel bill of about $1,000 in London or Paris or Tokyo, the conversion fees will cost you another $30. And when you consider the billions that we charge to credit cards overseas, 2 or 3 or 4 percent surcharges run into hundreds of millions of dollars.

With that much filthy lucre on the table, it's not just the banks that want to get into the act. A relatively new process called "dynamic currency exchange" allows everyone from the corner bistro to Hertz to clip you.

Dynamic currency exchange allows the retailer or restaurateur in Italy or Singapore or Caracas to present you with a bill denominated in dollars, not the local currency. The catch? The retailer sets the exchange rate and you can bet it's nowhere near the wholesale rate. And in the case of Hertz, which adopted a we-charge-you-in-dollars scheme overseas earlier this month, there's a double whammy: Hertz not only sets the exchange rate, it also charges you a 2.5 percent fee for the privilege!

Bottom line: never accept a dynamic currency transaction from a retailer, restaurateur, hotel or Hertz. If you're confronted by an overseas merchant that presents you with a bill in dollars, refuse it and insist on a charge appropriately calculated in local currency.

But the story doesn't end here. Aware of the fact that dynamic currency schemes could deprive them of their cuts of the currency game, Visa and MasterCard have changed the name of their currency-exchange fee. They have also changed how it is imposed. The 1 percent fee is now called Cross-Border Assessment (MasterCard) or an International Service Assessment (Visa). And the fee isn't imposed only on foreign-currency charges anymore. It now applies to any charge you make outside the United States regardless of whether it is denominated in dollars or the local currency.

This "out of the country" gambit guarantees that MasterCard and Visa will still be able to charge you a fee even if you do accept a dynamic currency conversion transaction denominated in dollars. And you can be sure that it won't be long before American Express, Diners Club and the banks that issue MasterCard and Visa cards transform their currency-exchange fees into "out of country" surcharges, too.

Pretty rapacious stuff, huh? Now you understand why the banks and credit-card companies make their disclosure statements so hard to read.

This column originally appeared at

Copyright 1993-2005 by Joe Brancatelli. All rights reserved.