Charge It . . . but Check the Math

Oops. No way did the credit card companies want to lose out on their hefty fees. Visa International took in $424 million in currency exchange fees for the fiscal year that ended September 2004, according to Robertson of the Nilson Report. That's nearly 30 percent of its annual revenue, he said.

This past April, Visa began adding a 1 percent fee onto any foreign transaction, whether dynamically converted to dollars or charged in local currency. But then in June, it suddenly rescinded the move, and went back to the previous policy of charging a 1 percent fee only on transactions made in foreign currency. In a statement, Visa said it made the change to "address issues raised by cardholders, merchants, and member financial institutions." In other words, almost everybody was upset. The company is "now reviewing the fee structure related to single-currency cross-border transactions," according to Rhonda Bentz, Visa's vice president of public affairs.

MasterCard currently charges 1 percent on foreign currency transactions only, but has announced that, in October, it will switch to charging 0.8 percent for all foreign transactions, with an additional 0.2 percent fee for transactions made in foreign currency.

Hefty Penalties

Whether you get socked with these fees -- and more -- all depends on the bank that issues your credit card. Some issuing banks, such as MBNA, are charging fees on any foreign transaction, regardless of whether you pay in dollars or local currency. According to MBNA spokesman Jim Donahue, the company levies a flat 3 percent fee on every foreign transaction; in the case of a charge made in foreign currency, MBNA absorbs Visa's 1 percent currency conversion fee.

So let's say you wander into a European shop that uses Planet Payment's DCC system and buy an irresistible trinket with your MBNA Visa card. Unless you request that the charge be processed in euros, you'll likely pay an extra 3 percent for the dynamic currency conversion. Then, MBNA will tack on another 3 percent for itself. That's a total of 6 percent on top of the price of your bauble. Consider what you spend on an entire trip -- at hotels, restaurants and rental car companies -- and it could be a hefty penalty.

In the same scenario, if you asked for charges to be run in local currency, typically the most you'd pay is the extra 3 percent charged by MBNA.

But wait! Just when you were ready to lie on the beach and sip a silly cocktail charged in local currency, there's another posibility. Bank of America currently imposes a 3 percent fee for transactions in foreign currency, but doesn't charge a fee for DCC transactions converted to dollars, according to spokeswoman Betty Riess. Chase does the same, spokeswoman Jessica Iben said. So with these cards, you'll pay about 3 percent more, no matter which currency you choose.

In our case, though, we did even better -- no fees on any foreign charges whatsoever, using a Capital One Visa. According to spokeswoman Diana Don, Capital One absorbs Visa's fee and adds no additional fees on foreign charges, whether they are made in dollars or the local currency. That's why we did so much better at our Irish hotel by paying in local currency.

(Other banks that have no fees attached to foreign transactions, according to Consumer Action, an advocacy group, are Amalgamated Bank, BMW Bank and Thompkins Trust Co.)

Bottom line: While MBNA cardholders could end up paying 6 percent extra by using DCC, and Chase or Bank of America customers will likely fork over 3 percent no matter which currency they choose, if you carry a no-fee card and pay in local currency, you'll come out the winner, with nothing extra added to your bill.

On the Alert

Global car rental chain Hertz has rolled out DCC to its corporate-owned outlets in nine European countries, according to Richard Broome, Hertz vice president of corporate affairs. Broome reported that in general, customers are satisfied with the "convenience" of immediately seeing their cost in dollars rather than euros, despite a 2.5 percent conversion fee -- but said that in some cases, Hertz has reversed the fee when customers complained. Broome said information about the transaction system is disclosed when customers pick up a car.

Shouldn't all merchants have to alert you about DCC? Visa's Bentz says yes. Visa requires merchants to disclose any add-on fees to customers, she said, and considers the DCC conversion-rate spread to be a fee. But during our Ireland trip, we were never once informed about it in advance or offered a choice.