Using your credit card to buy goods overseas used to be fun and financially sound.
After all, buying a pocketbook straight from Gucci (Stock Quote: GUCG) or comfortable shoes from Dansko allowed card users to save money while buying a quality product.
But that was before credit card companies got the bright idea of assigning a “foreign” fee to each overseas credit card transaction. Today many card issuers even slap a foreign transaction fee of up to 3% on foreign card purchases made in the U.S.
Domestic card consumers got some measure of revenge recently when a U.S. District Court in New York City ruled that credit card companies had to pay back $336 million for charging “undisclosed” currency conversion fees to U.S. cardholders who had made purchases overseas. Mastercard (Stock Quote: MA) , Citi (Stock Quote: C), Visa (Stock Quote: V), and Chase (Stock Quote: JPM) were among the offending parties included in that verdict (although none claimed any admission of guilt). According to the lawsuit filed by the law firm Lerach Coughlin Stoia Geller Rudman and Robbins, U.S. cardholders would get back any fees added to foreign currency purchases which were over and above the foreign currency fees that were stated in the fine print on credit card agreements.
The money kicked back to consumers isn’t exactly chump change. For the cardholder who spent $2,000 overseas, card issuers would have to return about $300, the law firm said.
But the deal didn’t outlaw foreign purchases fees and credit card companies still use them – as long as they spell out the fees in card agreements.
One piece of good news: Capital One (Stock Quote: COF) has decided to ban the foreign fee from its credit card, even the 1% foreign conversion fee that is considered a staple by other card companies.
Maybe it’s a coincidence that Capital One bumped up the number of its reward credit cards from one in 2007 to nine this year. If and when the economy gets healthier, Capital One could find itself the card of first choice for U.S. consumers looking to both shop and travel overseas. For such consumers, the typical 1% cash-back rebate, plus the 3% savings and foreign fees represents a likely 4% rebate on overseas purchases.
Not a bad deal for customers -- and Capital One is hoping it’s a good deal for business, too.