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Foreign Transaction Fees Are an Endangered Species

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Last week, American Express issued a news release announcing that, “towards the end of the first quarter of 2011,” the company will eliminate the foreign currency transaction fees for U.S. consumer and small business cardholders who make international purchases with their Platinum and Centurion cards.

Currency conversion fees have long been a standard feature of charge, credit, and debit cards. The fees range from 1 to 3 percent, with 3 percent the de facto industry standard.

Here, for example, is the relevant verbiage in the cardholder agreement for Citibank’s Simplicity card:

Transaction Fee for Foreign Purchases. The pricing information table shows the amount of this fee (3 percent of each purchase transaction in U.S. dollars), which is a percentage of the U.S. dollar amount of the purchase. We add this fee for each purchase made outside the U.S., whether made in U.S. dollars or in a foreign currency.

In other words, when you use your credit card to purchase a Hermes handbag from that snappy little boutique along the Champs-Elysees, the purchase price in Euros will be converted into U.S. dollars, and that amount, plus a 3 percent surcharge, will appear on your next statement.

What did the card issuer do to earn the extra 3 percent? Certainly it didn’t incur any extra costs that are being passed along to the consumer. Can it be justified as a convenience fee? Perhaps.

In any case, American Express’s move is part of a developing trend among card issuers to put the fee to rest, at least for select sub-categories of cards.

Chase is leading the way here, now offering several of its travel-rewards cards—those linked to the loyalty programs of British Airways, Hyatt, and Intercontinental—with no currency conversion fees.

And Citi recently announced that its new ThankYou Premier and Prestige cards—with annual fees of $125 and $500, respectively—will be free of conversion fees.

The above-mentioned cards are among the priciest in the market. American Express’s Platinum card carries a hefty $450 annual fee; the company doesn’t disclose the fee for the Centurion card, but it’s known to be much higher. That might suggest that card issuers can only afford to waive the conversion fees on their higher-profit cards.

That argument unravels, however, when we add Capital One to the list. Capital One has long issued credit cards with no conversion fees, and its travel-rewards card, the VentureOne Rewards card, comes with no annual fee as well.

Ultimately, consumers will decide which credit cards deliver the best value for their needs. But for anyone traveling overseas, a card that saves 3 percent on every transaction has a clear advantage—both in financial and goodwill terms—over comparable cards that continue imposing conversion fees.

If I were in the business of issuing credit cards, I would choose to be a leader in rescinding these fees—and not just for my high-annual-fee cards.

Reader Reality Check

How do you feel about paying an extra 3 percent for overseas purchases?

Do you have a strategy for avoiding or mitigating such surcharges?

This article originally appeared on

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