Visa, MasterCard lose ruling on hidden fees

Judge orders refunds in currency conversions

April 09, 2003|By BLOOMBERG NEWS

OAKLAND, Calif. - Visa International Inc. and MasterCard International Inc. hid foreign exchange fees and must give customers refunds, a California judge said yesterday in a ruling that could cost the companies as much as $800 million.

Alameda County Superior Judge Ronald Sabraw ruled that Visa and MasterCard failed to alert cardholders about a 1 percent currency conversion fee. Sabraw ordered the companies to submit a plan of restitution by April 28, said Allan Steyer, an attorney for the consumer who filed the lawsuit.

"We believe that the ruling, which will lead to more disclosure of these types of fees, will benefit cardholders in the United States," Steyer said.

The ruling is the second legal setback this month for Visa and MasterCard, the two biggest credit-card companies. Last week, a New York judge said Visa and MasterCard must face a lawsuit seeking $39 billion in damages brought by Wal-Mart Stores Inc. and other merchants accusing them of forcing stores to accept their debit cards.

Visa and MasterCard, bank-owned associations, denied that they hid the surcharge for overseas purchases and said it was up to the banks that issue credit cards to inform their customers.

MasterCard spokeswoman Sharon Gamsin said Sabraw found that the fee was legal and was among the lowest foreign exchange fees in the industry.

"In the face of undisputed evidence of consumer benefit of our currency conversion process, we found it defied logic that at the same time we were deceiving consumers," Gamsin said.

The plaintiffs are seeking as much as $800 million.

Sabraw said the conversion fee "is hidden in the transaction amount on billing statements" in such a way that it "is likely to mislead consumers."

He noted that Visa collected $817 million from its U.S. cardholders making foreign purchases or debit card transactions in foreign countries from 1996 through March 2002.

MasterCard collected $195.5 million nationwide from foreign currency conversion fees from February 1996 through December 2000, Sabraw said.

Under California law, all of San Francisco-based Visa's U.S. cardholders who have paid the fee since 1996 are owed refunds, Steyer said. Purchase, N.Y.-based MasterCard must pay refunds to California cardholders only.

A spokeswoman said Visa will appeal.

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