This week I received an updated terms and conditions for a Mastercard credit card I have through Barclaycard. The procedure for converting foreign currency concerned me, because it struck me as sneaky and dishonest. I reached out to both Barclaycard and Mastercard about Mastercard foreign currency conversion rates and their response concerned me even more. There might not be much you can do to protect yourself from this sneaky practice, but I am going to go ahead and let you know what is going on.
A Brief History of Credit Card Providers Trouble with Foreign Currency Conversion
To put this problem in a little context MasterCard and other card issuers were recently sued in a class action lawsuit for charging non disclosed fees to cardholders who had transactions in foreign currency between 1996 and 2006. You can read the details of that lawsuit here.
I was one of about 10,000,000 involved in that class action lawsuit. Here is how it worked from my perspective:
In the summer of 2001 I went on a 4 month long backpacking trip through Europe where I used my credit cards countless times, and each time I was charged a sneaky hidden fee without ever being told about it anywhere.
Many years later I was informed of the lawsuit through the mail which included a calculator to estimate how much I was owed. I used that calculator and was told I was owed about $125 (to the best of my memory, this was many years ago after all).
Many years later, in 2014 I received a check for $18.50 and a letter explaining that so many people had been stolen from that the credit card issuers couldn’t possibly pay us all back, so we were getting just a fraction of what had been stolen from us.
So basically, MasterCard and other card issuers stole $125 from me and 13 years later had to pay me 15% of that money back. Obviously the only possible lesson to be learned here is that crime pays very, very well.
Now you know why I am concerned when I received the following note about MasterCard’s new foreign currency conversion procedures:
Mastercard’s Current Foreign Currency Conversion Procedures
This is the notice I received on my card’s foreign currency conversion procedures. The parts in bold were bolded by me because they are the parts that bothered me:
“For MasterCard accounts, we and Mastercard (or their affiliates) will convert transactions in foreign currencies into U.S. Dollars. MasterCard will use its currency conversion procedures that are current at the time of the transaction. Currently, MasterCard selects a rate from the range of rates available in the wholesale currency markets for the applicable central processing date, which rate may vary from the rate MasterCard itself receives, or the government mandated rate...”
Huh? The way I interpret this, MasterCard’s procedure is to buy foreign currency at one rate, and then charge its customers a completely different rate. If a government mandated rate doesn’t have to be followed, that isn’t much of a mandate, is it? Obviously MasterCard is going to buy foreign currency at the cheapest rate it can get. What rate do you suppose they are going to charge their customers?
I don’t know the answer to that, but the way I interpret their procedures is that there is absolutely nothing stopping them from choosing the worst possible rate available which would result in a foreign currency transaction gain for them at the expense of their customers. MasterCard says they don’t charge a foreign currency transaction fee (your card issuing bank might), but this is a lot like a fee isn’t it? You pay a higher amount and MasterCard keeps the difference as income. In my opinion, that is exactly like a fee.
Looking For Clarification
To see if I really am interpreting this correctly, I started by doing a bunch of web searches. I didn’t find much except that Visa has the same procedures. So if you are looking for away around this trap, Visa isn’t going to help you out.
I emailed my card issuer, which is Barclaycard. The response I got from them was that the question I had related to MasterCard’s procedures so I would have to ask MasterCard. Fair enough. They gave me a phone number to call MasterCard and I called it.
I had an extremely frustrating 15 minute phone call with MasterCard. The first person I spoke with didn’t have any idea what I was talking about so she transferred me to a second person. I asked the second person about MasterCard’s foreign currency conversion procedures, and she told me I wasn’t charged a fee for foreign currency conversion on my card.
I told her that was nice, but didn’t have anything to do with my question, which was about how MasterCard comes up with conversion rates. She again told me I wasn’t charged a fee. I realized the person I was speaking with didn’t understand what a foreign currency transaction rate was, so I explained it to her.
After explaining it about 3 times I think she finally understood. I asked again how MasterCard gets their rate, and was told it is done automatically by “the system”. I explained that MasterCard’s system doesn’t just randomly make up exchange rates so that it must have some kind of procedures for coming up with that rate and that I would like to know what those procedures were. She repeated that the system came up with the rate automatically because she didn’t have any idea. (Here is a tip from me. When you don’t know the answer to a question just say “I don’t know”. You will come off looking much smarter that way.)
After way more follow up questions than you would think necessary I was told that nobody at MasterCard had any idea how it worked and there was nobody I could possibly talk to who would have any idea how the system worked. I gave up, thanked the lady for her time, and hung up.
What I know about MasterCard’s conversion rate.
So there you have it, I learned nothing. MasterCard might be cheating you on foreign currency conversion rates, but maybe they are charging you a fair rate. There is no way to tell from information sources available to me. I hope that helps. If MasterCard would like to explain their foreign currency transaction procedures here I will gladly publish them.