Banks accused of hiding $35m in card fees

By CLAIRE TREVETT

The Commerce Commission is prosecuting banks and credit card providers, claiming they have been hiding up to $35 million in fees charged to card-holders who use credit cards overseas.

The commission is filing criminal prosecutions, accusing the card providers of increasing the cost of overseas purchases by up to 2 per cent without telling customers about the fees.


The banks are the ASB Bank, Bank of New Zealand, TSB Bank, Westpac and the ANZ National Bank.

Credit card companies Diners Club (New Zealand) and American Express (NZ) International, and the Warehouse Financial Services Company, are also being prosecuted.

New Zealanders spent $2.45 billion on their credit cards overseas in the year to October, Reserve Bank statistics show.

The fees made banks about $35 million over the past year.


Commission chairwoman Paula Rebstock said including currency conversion fees in foreign exchange quotes could amount to misleading conduct.

Ms Rebstock said the card-holder unknowingly ended up paying extra charges to the credit card company and the bank on top of the exchange rate.

Under new Fair Trading Act penalties, the companies could be fined up to $200,000.


Consumer groups have criticised the way fees are charged.

When the investigation began, Consumers' Institute chief executive David Russell said New Zealanders were being stung by bank charges they knew nothing about.

Last night, he said he was delighted that the commission had decided to act.

"That is the whole purpose of the Fair Trading Act. If you're in a trade, then you cannot mislead or deceive or do anything likely to mislead or deceive.

"In this instance, an element of important information was left out. People get caught because they haven't been told what they are getting in for."

Card-holders pay 1 per cent to Visa or 1.1 per cent to Mastercard for the conversion process.

Information on banks' websites said they charged between 1 per cent and 1.95 per cent on top of that.

The decision to prosecute followed an investigation under the Fair Trading Act.

Although many banks said they had lifted their game in disclosing the fee, Ms Rebstock said improvements had not gone far enough.

David Tripe, senior lecturer in banking at Massey University, said he was not surprised that the commission was prosecuting.

"To some extent they had it coming, because I don't think the situation has been satisfactory for some time in terms of disclosure to customers."


All banks spoken to said they were co-operating with the Commerce Commission.

Many said the problem of disclosure was no longer relevant because procedures had changed.

Westpac spokesman Paul Gregory said the fees were justified.

"It's a convenience thing. It reflects the feel of going overseas and having something which does the currency conversion for you, rather than the inconvenience and risk of doing the transaction yourself in a foreign exchange place with travellers' cheques or cash.

"In our view, it is a payment for the convenience and mitigation of risk."

National Bank spokesman Robert Reid said the bank changed the way it disclosed credit card foreign currency conversion fees some time ago, and "we believe our current disclosure standards are appropriate".

BNZ spokesman Owen Gill said all transaction fees were shown separately on credit card statements.

"Assuming the commission proceeds, it is a case we will defend. We believe we are meeting our obligations under the Fair Trading Act for disclosure."


ASB spokesman Clayton Wakefield said that since 2001, the bank had been disclosing its currency conversion fee to its customers in its terms and conditions.


* Similar action was taken in California's Superior Court last year.

Visa and Mastercard were ordered to return $1.14 billion in conversion fees after a judge said that though the charges were legal they had not been clearly disclosed.

It emerged in the trial that between 1996 and 2000, Visa charged card-holders more than US$630 million ($908 million) in currency conversion fees. The cost of the transactions to Visa was US$6.9 million.

The charges

What banks charge (added to transaction costs):

BNZ: 1.25 per cent

Westpac: 1.95 per cent

National Bank: 1 per cent

ANZ: 1.5 per cent

ASB Bank: 1.25 per cent

TSB Bank: 1.75 per cent