The foreign currency gouge

For years some major credit card companies failed to adequately disclose the fees for overseas transactions.
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01 .The foreign currency gouge


Hidden fees on overseas transactions

Our analysis of credit card statements and foreign exchange transactions going back as far as 2002 finds that consumers of several financial institutions were charged much more for overseas transactions than the fees disclosed on their statements suggested.

This understating of charges was widespread in the industry, potentially involving millions of dollars. Few of many affected customers are likely to have known this was going on, because the extra fees were hidden in the exchange rates that were applied to transactions.

  • Until as recently as 2005 and 2006, bills and statements from some major credit card companies (such as banks and other financial institutions) understated what customers were being charged for foreign currency transactions.
  • In other countries, customers have been compensated for failure to adequately disclose fees.

Please note: this information was current as of April 2007 but is still a useful guide to today's market.

What we found

A selection of major banks’ card statements that we analysed found that up to around mid-2005 (earlier and later in some cases), customers often paid more than their bills and statements suggested. These companies’ statements didn’t mention the fees that MasterCard and Visa add to their wholesale exchange rates (the fees were 1.1% and 1% respectively), which customers were charged in addition to the banks’ fees.

A statement is the main document a consumer is likely to refer to when checking what they’ve been charged for transactions. While in some cases, contracts and letters of offer explained that the exchange rates applied were set by MasterCard and Visa, this was effectively ‘buried’ in the terms and conditions and the amount of the fee they add to the exchange rate often wasn’t mentioned.

See examples of what we found.

Overseas actions

The charging of similar hidden credit card fees has been investigated in other countries, with legal actions in the US, and in New Zealand, where some of the banks that paid record fines and compensation to consumers are affiliated to Australian banking groups. Read more about the overseas crackdown.

CHOICE verdict

 We think the Australian Securities and Investments Commission (ASIC) should investigate the disclosure of these fees and what was charged.

The incidents of poor disclosure we found may just be the tip of the iceberg. We examined past credit card statements from some of the major banks at particular points in time, but not all credit card providers and not over the full time period that this may have occurred.

We don’t know how the law in New Zealand and elsewhere compares to Australia’s (and as you’d expect, some banks maintain they properly disclosed fees). However, it’s not good enough to bury references to fees in the small print of contracts and in letters. This is true not only for cards, but for other forms of travel money including travellers’ cheques and foreign notes.

We think all costs to the consumer — whether they're labelled fees, commissions or margins — should be properly disclosed in advertising and other documents. That way you could know what you’re really paying and make better choices.

What you can do

If you’re unhappy with what you’ve been charged for overseas transactions, you can lodge a complaint with:

  • Your credit card provider.
  • The Banking and Financial Services Ombudsman (BFSO): phone 1300 78 08 08 or visit the BFSO website at
  • Australian Securities and Investments Commission (ASIC): phone 1300 300 630 or visit the ASIC website at

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Here are some examples that we found:

  • ANZ: 2002 statements said customers were charged a conversion fee of 0.5% of the transaction amount. However, another 1% was included in the exchange rate. ANZ says it told customers that conversion rates were determined by the card schemes (MasterCard and Visa) and says they shouldn't really expect to receive a wholesale rate. But what normal consumer thinks in terms of wholesale in relation to credit cards?
  • Commonwealth Bank (CBA): In mid 2006, customers’ statements said the international transaction fee was 1.5%; we calculate that another 1% was included in the exchange rate. When we asked CBA about this it passed the buck, saying MasterCard and Visa are solely responsible for the exchange rates (see Not our fault, below).
  • Westpac: In 2002, statements said the currency conversion fee was 0.5% when overall customers were often charged around 1% to 1.5% over wholesale rates. When we pointed this out, the bank didn’t comment on the previous disclosure practices, instead explaining how currency fees are now charged and disclosed.
  • In 2004, Virgin, which offers a card provided by Westpac, was disclosing in statements that “purchases or cash advances/withdrawals made in a foreign currency represent the Australian currency equivalent of such transactions, together with the bank's currency conversion fee, being 1.0% of the Australian currency equivalent”. However, we calculate the overall cost was closer to 2%.

It’s likely that other companies offering credit cards, including banks and credit unions, were similarly charging more than their statements disclosed. The practice was widespread until changes were made in the way these fees are disclosed and described by MasterCard and Visa.

Case study: Westpac

In 2002, Westpac statements said “entries for purchases or cash advances/withdrawals made in a foreign currency and charged to your credit card account represent the Australian currency equivalent of such transactions, together with the Bank’s currency conversion fee, being 0.5% of the Australian currency equivalent”. The statements provided no further breakdown of currency fees.

However, when we took a closer look at some overseas transactions made by John, a Westpac Visa customer, we discovered that in the past, he’d had been charged an extra fee concealed in the exchange rate applied to his transactions. For transactions in 2002, for example, John was charged at least 1% to 1.5% above wholesale exchange rates — up to three times what statements disclosed.

Luckily, John hadn't made many overseas transactions with the card. "The financial impact of this fee isn't significant to me personally. Of more significance is that I can't necessarily believe what the bank tells me is correct."

In New Zealand, MasterCard and Visa’s 1% fee was similarly undisclosed on statements, but appeared in conditions of use and some other documents. The Auckland District Court concluded that wasn’t enough – that Westpac had taken a “decidedly economic approach” to disclosure of foreign exchange fees, which was “bound to result in the vast majority of customers being either blissfully unaware – or at least less than well informed – of the true overall charges”. In New Zealand, Westpac accepted that it was appropriate to disclose the fee and that it had breached fair trading laws there.

Not our fault

MasterCard and Visa disclaim responsibility for fee disclosure to individual consumers; their contract is with the card issuers (such as the banks) and not with individuals. They say it’s the card issuers’ responsibility to disclose what customers are charged.

Some card issuers, on the other hand, say MasterCard and Visa are responsible for their exchange rates and that card issuers, such as banks, didn’t benefit from the 1% fees included in them.

CHOICE thinks it’s irrelevant who benefited: the point is that the consumer paid, and should have been very clearly informed by the institution they had a contract with (the card issuer) how much they were paying.

03.Overseas crackdown


New Zealand regulator gets tough

In 2002, New Zealand’s Commerce Commission commenced a widespread investigation after consumers complained about undisclosed currency fees being charged on top of exchange rates for credit and debit card transactions. The first cases were concluded in 2006; the rest are ongoing. The situation in New Zealand seems to have been worse than in Australia: in some cases banks didn’t disclose any currency fees — including the scheme fee (as in Australia) or their own fee.

Some of those prosecuted are affiliated to Australian banking groups:

  • ANZ National Bank: In March 2006, ANZ National Bank pleaded guilty to 45 charges of breaching the Fair Trading Act by failing to properly disclose fees charged for overseas credit card transactions. The bank agreed to pay NZ$10 million in refunds to customers and NZ$1.3 million in fines, the highest ever fines imposed under the Act. The transactions occurred from 2001 to 2004, with customers paying fees between 2% and 2.5%. More info: ANZ National Bank pleads gulity over credit card fees.
  • BNZ: In July 2006, BNZ (part of the National Australia Bank group) pleaded guilty to similar charges, agreeing to pay NZ$5 million in compensation to customers and $550,000 in fines. More info: BNZ pleads guilty over card fees.
  • Westpac: In September 2006, Westpac pleaded guilty over failure to disclose the fees for overseas transactions made between April 2002 and December 2004. Customers had paid fees of just over 2.5% of the value of these transactions. The Bank agreed to pay NZ$4.5 million in compensation to customers. More info: Westpac to pay $5 million in compensation and fines.

The New Zealand Commerce Commission’s prosecutions of American Express, ASB (Commonwealth Bank’s New Zealand brand), Diners Club, Kiwibank, The Warehouse Financial Services and TSB are ongoing.

US legal actions

The New Zealand actions follow successful (and much bigger) legal cases in the US against MasterCard and Visa over similar fees, which the card companies appealed.

In 2003 in California, MasterCard's and Visa’s failure to disclose fees was found to be in violation of the state’s unfair competition law. As in some Australian examples, conversion fees were disclosed in cardholder agreements (which are sent to customers with their card), but not on monthly statements. The relevant court found that customers are much more likely to read their statements, and therefore reasoned that the currency conversion fee constituted a ‘hidden’ charge.