200 million Americans don’t realize foreign transaction fees can apply without foreign travel
U.S. consumers, already on the hook for more than $1 trillion in unpaid credit card balances, waste millions of dollars each year paying foreign transaction fees on credit cards – in many cases without even knowing it, according to a new credit card survey from the personal-finance website WalletHub. Half of all credit card users don’t know whether their card has a foreign fee, the nationally representative survey found. But that is only part of the problem.
Not everyone travels internationally, and almost everyone assumes they’re safe from foreign fees while at home in the states. In fact, 4 in 10 people don’t realize that credit card companies can charge foreign fees while they’re traveling abroad, and 8 in 10 don’t understand that foreign fees can apply while they’re dealing with overseas merchants from the U.S. Unsuspecting online shoppers who make a purchase from a merchant based abroad could get hit with an international surcharge of up to 3 percent as a result – all without leaving the country.
“Consumers often do not know this until they spot the foreign transaction fee listed separately on a bill,” Sarah Jane Hughes, a university scholar and commercial law fellow at Indiana University, told WalletHub. “I would be surprised if these fees are not correctly disclosed in credit card agreements, because that is required. Some consumers may not have read the entire set of disclosures or have read only the parts they thought they had interest in at a particular time.”
Foreign transaction fees on credit cards only seem to make consumers mad, however. More than 80 percent of people consider foreign fees to be unfair, and 6 in 10 go as far as to say they’ll never get another credit card that charges a foreign fee.
Sherrill L. Shaffer, an emeritus professor of banking and financial services at the University of Wyoming, notes, “They can choose either to fold that cost into their general fee structure or to cover it by a specific foreign transaction fee.”
Credit card companies do not, however, assess foreign fees with global politics in mind – even though many people would like it. More specifically, 7 in 10 people think credit card foreign fees should be cheaper in countries allied with the U.S., WalletHub found.
“I’m surprised by this finding,” said Jill K. Maher, a professor of marketing at Robert Morris University. “The U.S. is an individual nation with its own currency and economic policies. It’s not like the EU, where countries share currencies and financial policies. In a case like that, I could understand this mentality.”
Some experts see the people’s point, however. “I don’t find it surprising that 7 of 10 people think foreign fees should be cheaper in countries allied with the U.S. because of the volume of imports and exports taking place between trading partners,” said Sahar Bahmani, an associate professor of economics at the University of Wisconsin-Parkside.
Nevertheless, more credit cards without foreign transaction fees are available to consumers now more than ever. Most of the best credit cards on the market are among them, too, which means there’s no need to sacrifice in terms of rewards, annual fees, APRs or other features.
Although finding a good credit card with no foreign fees is increasingly simple, consumers’ lack of knowledge is problematic, perhaps speaking to broader issues. “Many people are financially illiterate, unfamiliar with the basics of personal finance,” said Jianping Qi, chair of the finance department in the University of South Florida’s Muma College of Business. In other words, although credit card companies could make things easier on us, many consumers need to up their game, too.
“It is a challenge of public education to make people aware of the possibility of such fees and to prompt them to become informed regarding their own credit cards,” said Sherrill L. Shaffer of the University of Wyoming. “It’s a bit of a chicken-and-egg problem: anyone who is broadly aware of such fees will likely take a moment to check out the particulars for their own card; but anyone who hasn’t looked at it for their own card probably is unaware of the issue more generally.”