South African credit-card holders travelling abroad continue to pay hidden fees despite a rigorous investigation into banking practices by the Jali commission last year.
Banks charge a currency conversion fee of between 2% and 3% for overseas transactions. This includes the fee charged to the bank by MasterCard and Visa of about 1%. Yet, apart from Nedbank, this fee is not reflected on bank statements and has been built into the rand cost of the purchase.
This practice, which is global, has resulted in class action in the United States against banks and payment system providers such as MasterCard and Visa.
According to the Currency Conversion Fee Antitrust Litigation website, the charge relates to how the “prices of credit and debit/ATM card foreign transactions were set and disclosed, including claims that Visa, MasterCard, their member banks and Diners Club conspired to set and conceal fees, typically of 1% to 3% of foreign transactions, and that Visa and MasterCard inflated their base exchange rates before applying these fees”.
The defendants include Visa, MasterCard, Diners Club, Bank of America, Bank One, Chase, Citibank, MBNA, HSBC and Washington Mutual. Although neither Visa nor MasterCard will disclose the amounts involved, large advertisements have been published in the US encouraging people to come forward if they travelled abroad between February 1996 and November 2006.
According to Eddie Grobler, head of MasterCard Southern Africa, South African banks were advised towards the end of last year to reflect this currency conversion fee, but Nedbank is the only one to have done so.
Rob Maclean, Nedbank’s senior business manager for credit, says “Nedbank discloses this fee because it is the right thing to do” as it falls under the Banking Code of Conduct.
Standard Bank and FNB say the fees are stated in their brochures. But, with the complexity of pricing, it is unlikely anyone is aware of these fees, which should, like other fees, be clearly reflected on the statement. FNB adds that the fee is posted directly into the system by Visa and this data already includes the conversion fee. Nedbank has programmed its system to break this fee down further before posting it to the account.
“A system adjustment of this nature would require quite a bit of systems development from our side and as we already disclose this fee in our pricing and hardly ever get any queries regarding this fee, it is currently not on our priority list for systems development,” says Justine Teiwes, of the communications department at FNB.
This lack of transparency has skewed the perception that credit cards are, in fact, cheaper than any other form of foreign exchange. Last year, a comparison by the Mail & Guardian showed that when this invisible fee is taken into consideration, credit cards, in certain circumstances, can be more expensive than traveller’s cheques and cash. It also adds a cost to travellers of which they are unaware. But ultimately it is the banks’ response that creates cause for concern.
The “if people don’t notice the fee, why highlight it?” attitude is the very reason why the banks found themselves before the Competition Commission last year.
It is disappointing that despite an opportunity to interrogate their practices during the Jali commission, banks still follow practices of non-disclosure. Customers have a right to expect fees to be clearly stated per transaction, not to be hidden in pricing brochures no one reads.
The M&G has raised this issue with the Banking Association, which has agreed to investigate further.