02.What we found
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.