By Lucy Lazarony


Your credit card issuer could be charging you an extra 2 percent on every credit card purchase you make outside the United States, even  though it does nothing to earn the money.

Many banks are charging fees for "converting" purchases made in  foreign currencies into U.S. dollar amounts.

When you hand a credit card to a waiter in a Parisian cafe, you're paying for your meal in francs. But the charge that shows up on your  credit card bill is in U.S. dollars. Many banks are charging customers 1- to 3-percent fees for this service.

"The thing is a complete gouge. By the time the issuing bank in the U.S. gets the charge it's already in U.S. dollars," says Ed Perkins,  a nationally syndicated travel columnist and consumer advocate.  "It's the international Visa and MasterCard associations that actually make the exchange. They pay out pounds or whatever it is  and get back dollars from the U.S. issuing bank."

American travelers already pay for this exchange service. Visa and  MasterCard levy 1-percent currency-exchange fees on transactions  made abroad. The card associations bill the issuers, and many issuers, in turn, bill customers.

 

Behind-your-back banking

And now many banks are tacking an additional 1- to 2-percent fee on every credit card purchase made overseas.

"It's just 1 or 2 percent of greed, really," says Linda Sherry,  editorial director at Consumer Action, a consumer advocacy organization based in San Francisco.

Let's say your bank charges the 1-percent Visa or MasterCard fee  for foreign transactions plus a 2-percent surcharge of its own.

And let's say you use your Visa card to buy a $300 leather jacket in Rome. You'd end up paying $3 to Visa and $6 to your bank for a  grand total of $309.

But these fees won't be listed anywhere on your Visa bill. It will  simply read "$309" next to the name of a shop in Rome.

You'd have no idea that you were coughing up $9 in fees unless you  did some serious digging prior to your trip. And the banks charging these fees know it.

"Basically they're doing it because they can hide it in the foreign  exchange and they can get away with it,"Perkins says.

"People would recognize a padding of bills in U.S. dollars."

Finding the fees How can you find out if your bank is taking a cut on every purchase you make overseas? Grab a magnifying glass and pull out your cardholder agreement. If you've had a card for a while,  your bank may have popped in a fee notice with a bill.

"It's in the fine print that you get. But how many people keep that, let alone read it?" Perkins asks.

Your best bet is to call your bank and ask about the surcharges. Be sure to ask about fees on debit cards and ATM cards, as well.

Bank of America charges a 2-percent fee each time a customer uses an ATM card, debit card or credit card outside the country. Card customers pay the 1-percent conversion fee from Visa and MasterCard, as well.  Bank of America also charges a $1.50 to $2.50 fee each time a customer uses an overseas ATM.

Other issuers charging a 2-percent surcharge on foreign transactions on top of the 1-percent charge from Visa and MasterCard include  Citibank, Bank One/First USA, Chase Manhattan, Providian and Wells Fargo, according to a recent phone survey by Bankrate.com.

Who's not charging these sneaky, new fees? A handful of big issuers and lots of smaller ones. Capital One, MBNA America, FleetBoston and Wachovia Bank are not  charging extra fees on foreign transactions at this time.

None of the nation's credit unions charge these kinds of fees. Most community banks don't either.

"None of our banks charge foreign currency conversion fees," says Scott Broughton, senior vice president of marketing for ICBA Bancard, the credit card subsidiary of the Independent Community Bankers Association.

 

Don't leave home without calling

Because fee policies have the tendency to change, it's a good idea to contact your bank and credit card issuers a couple of weeks  before an overseas trip.

"Check before your trip on each card you're thinking of using," says Edward Hasbrouck, author of The Practical Nomad: How to Travel Around the World.

"When you call your bank or credit card issuer, there's a strong possibility of getting misinformation if you don't probe carefully ... You've got to ask a lot of questions. You've got to probe for all possible kinds of charges."

Don't be surprised if a customer service rep passes you off to someone else.

"You may have to call three or four different people because the first person may not know," Perkins says.

Be persistent. Once you've tracked down the fee policies for all the different kinds of plastic in your wallet, you'll be able to decide which cards to take with you and which ones to leave at home.

You'll definitely want to bring a card or two on your overseas adventure. Credit cards are still a great way to pay while traveling.

Exchange rates offered by credit cards are better, often a lot better, than those offered at a currency exchange counters and even at overseas banks. The reason? The exchange rates secured by Visa and MasterCard are based on wholesale rates offered to large banks and corporations rather than the retail rate offered to consumers. Ditto for exchange rates on debit cards, such as the Visa Check Card and MasterCard Money.

Even with those pesky surcharges thrown in, paying with plastic is still cheaper than converting cash overseas.

Banks or foreign currency exchange dealers swap your dollars at less-favorable "consumer" rates of exchange, plus they charge fees of their own. The bank fees vary widely; the exchange dealer's fees run 7 percent or more. The same thing happens with traveler's checks.

"When you exchange cash or traveler's checks you're going to lose a minimum of 5 or 6 percent and probably more than that," Perkins says.

Paying for a travel adventure with a credit card or debit card is still a smart way to go. It's just not quite the deal it used to be, thanks to those sneaky, new fees.