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Buyer Beware: Dynamic Currency Conversion (DCC) by Luke
“Dynamic conversion” works by allowing foreign merchants to calculate your bill and charge you in U.S. dollars rather than the local currency. “Dynamic currency conversion” occurs at the point of sale (POS) with an exchange rate determined by technology partners through the merchant’s bank. These partners offer “dynamic currency conversion” as a service to merchants that enable them to profit from the currency exchange. (The only way to know the actual rate being charged is to ask the merchant exactly how they’ve arrived at the final price being paid). Some people wrongly assume that credit card issuers are the big losers with “dynamic currency conversion.” They believe that since the purchase is made in U.S. dollars they won’t also be charged a conversion fee by the credit card company. However, many credit card issuers charge their foreign transaction fees simply for making a purchase in a foreign country. This is why they’ve recently taken to calling the fees “foreign transaction fees” rather than “foreign conversion fees.” As such, the actual fee paid by the consumer is compounded, and the only loser is the buyer. In essence this means that unassuming buyers are paying multiple conversion/transaction fees for the same purchase. “Dynamic currency conversion” fees can only be added to Visa and MasterCard credit and debit card purchases. AmericanExpress cards use a “closed system” which does not allow technology partners and issuing banks to add fees to transactions. As such the maximum fee with an AmEx card is 2% of the purchase. With Visa or MasterCard the total fee for a DCC transaction usually ranges between 3-10% depending on the DCC fee charged by the technology partner and the fee charged by the bank issuing the credit card. Depending on the merchant, “dynamic conversion” isn’t always the “scam” that some make it out to be. That said, the fee is almost always higher than it would be to avoid “dynamic conversion” and just use a credit card with a low transaction fee. To avoid the threat of DCC altogether, AmericanExpress cards are the only option.
17 Comments to "Buyer Beware: Dynamic Currency Conversion (DCC)"
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June 13, 2006 
When it comes to making international purchases with a credit card, there are a number of ways uninformed travelers get hit with additional fees. “Dynamic conversion” is a new option for travelers to be aware of – especially since it that can add exponentially more to the overall price of the purchase. In fact, the fees can be so extreme that some consumer advocates have taken to calling “dynamic currency conversion” a scam. Although fees are added to the purchase in such a way that consumers have almost no way of knowing the actual total fee paid, the practice is legal almost everywhere in the world.
Comments (17)
Hello,
Couple tips to share when you are using Visa or Mastercard oversea:
(1) Before you go oversea, call up your card issuer and ask if it applies apply any additional transfer fee on a foreign country transaction OTHER THAN the forex conversion commission if the transaction is transacted in the foreign local currency. You should also then ask them the same question for a foreign transaction done in your home currency when a foreign merchant offers you the DCC service. Make sure you take the person’s name.
(2) At the foreign merchant where you make the purchase, before you sign the receipt, please check the currency of the transaction. If it is the same, then there is no DCC service offered to you.
If it is different, you should check the conversion rate and do some calculation for the fees (include your issuer’s fee if any for a foreign transaction).
If you find out the conversion cost is not favorable, you should tell the merchant to refuse to pay in the converted amount and ask to be charged in the foreign local currency.
If the merchant refuses, you should take down its name and its card acquirer info (best is to keep the unsigned receipt in case the merchant does not want to disclose), then walk away from the sale or to pay in local cash. When you get back or you have access to internet, go to Mastercard or Visa Card website and write in to complain about the merchant’s no choice offer for currency conversion. The Merchant and the acquirer will get investigated by the respective card scheme.
Most importantly, DCC service is about the card holder’s choice and the conversion fee’s transparency. If these 2 are not available, then it is not comform to the regulation outlined by Visa and Mastercard.
With the introdcution of ISA fee on foreign transaction by Visa for certain card issuing countries, the card holder should be even more careful as it may get charged with fees at both the merchant and issuing billing statement end – double troubles!!
Just to clarify in my last statement, I mean to say if a card holder want to using the DCC service for a transaction when in a foreign country, AND its Visa Issuing country had also implemented ISA fee for ALL transactions done in a FOREIGN country REGARDLESS of the application of DCC service, the card holder should consider the cost implication carefully as in the worst case, a DCC transaction could be hit with the DCC commission and the ISA related fee from the card issuing Bank.
As card operating regulation changed or refined with time goes, it is alway best to check with your issuing bank first to find out the cost implication before you use your card in oversea. Hope this helps.
Note: I hope this helps the card users but to not discredit any DCC service provider, Visa and Mastercard.
I think DCC service still quite young and therefore, it will take some time to refine and to prevent any pitfall in the early stage. Card Holders also need some time to learn about its cost behavior and the benefit.
It seems like credit card companies would be required to say about DCC fees on the terms and conditions. After reading this I read my literature from MBNA and it said nothing about this DCC.
You are missing the point edk. Credit card companies don’t chare the ridiculous fee. The Merchants charge it. That is why you must refuse to pay if they offer it to you. I almost never get offered to use the DCC. I always refuse if I do. Most give me no problem when I refuse. I think this is the best strategy because my credit card fees are lower.
I’m not sure this is technically a scam. It depends on if you know that it is cheaper just to say no. It is more like a sneaky way for a few middle men to make some extra bucks without you knowing that you’re actually paying more. But scam suggests something more illegal. This isn’t illegal. The major credit card companies shouldn’t allow this to happen. I would feel scammed if I didn’t know about it, plus doesn’t this hurt the credit card company bottom line? They should put an end to it to avoid confusion.
In response to this post, Planet Payment, a leading merchant services provider, contacted us requesting an opportunity to defend the DCC service. Click here to read our interview with Planet Payment.
A real world example of the DCC “perfectly legal scam” is in the International Herald Tribune on 3 August in the Frequent Traveler Q & A column by Roger Collis. I recently encountered DCC (or its second cousin) when renting a car from EUROPCAR in France. Bottom line – avoid EUROPCAR like the plague.
My Mother and I enjoyed a delightful meal on Grand Cayman Island which I paid for with my American Express (Green) card.
Long story short, they presented me with a receipt in US Dollars after I asked them to charge me in the local currency.
They claimed they had to do the conversion (menu prices were, of course, in the local currency. I knew what the exchange was at the time and felt they had goosed it up a bit.
To the credit of American Express (and readers this company has the BEST SERVICE!!!!!!!!) they agreed and gave me a credit!
Hi,, I think there is a disconnect in the comment from the various contributor.. My understanding of the use of DCC is transparent to the customer like you and me. The ONLY risk to us will be the currency conversion is done at the time f purchase as against the time the charged if bill to us by the local card issuer. Thus any risk of higher cost would depend whether the conversion rate done during transaction at the merchant against during billing time by the issuer bank.
My understanding on the current transaction done by foreign traveller ( without DCC) , there is already in place a currency conversion process by the card issuer , be it Visa or Mastercard ( And I believe the fee charged is 3% and above) . Thus the DCC initiatives is not something new but merely breakdown the currency conversion monopology of these card issuer, to allow market forces to dertermine a more competitive rate for customer like you and me.
The DCC “vendor” gain , actually derived from the “loss” of the card issuer , as the card issuer now is not able to derive addition revenue from the currency conversion, which is now undertaken by the DCC vendor and the local bank, which offer this service
Pls correct me if the above understandng is wrong
DCC has become an even worse deal now that Visa and MC have changed their fee structure and charge their foreign transaction fee based on where the transaction took place regardless of the currency it was transacted in. So now you’re paying both the DCC fee and the Visa/MC fee. It’s not clear if the extra 2% fee that some issuing banks charge is also being charged.
Bottom line is to choose a Visa/MC where the issuing bank doesn’t add their own fees (i.e. Capital 1 or USAA) AND don’t let the merchant use DCC to charge you in U.S. dollars.
I do not believe this
For “fornetti” – if you never use your Visa or MC outside of the U.S. then none of what has been said here applies. If you do, you should be aware that some vendors do not give you a choice of currency in which you are billed. They do not play by the rules and make the decision for you, resulting in an exchange rate that is in their favor and not yours. See my post on 11 Aug 2007 and do youself a favor and do a little research, unless of course the extra charges/fees do not bother you.
DCC is not good for merchants also in Thailand .
here is the one example http://www.scb.co.th/html/exchange/bk-txtexchange.htm form siam commercial bank in thailand shows
if the merchant collect money by DCC the exchange rate is less then the actual rate.
I have never been asked if I want to pay in Euro or Dollars while in Europe. I have been a victim of this scam and yes it is a scam because the merchant does not ask.
Now I am more alert and specifically ask the merchant “Can I pay in Euro?” as I had them the Visa card.
Once, in Spain, I asked the hotel owner about it and she let me watch as the transaction was made. The merchant is given a question (based on the information on the card that the cardholder is an American) “does the customer want to be billed in Euro or Dollars?” and the default in Dollars. If the merchant just presses ENTER then the transaction goes through in Dollars.
You are now seeing DCC in ATM transactions too. This is also a scam and several banks try to trick you by asking if you want to be billed in Dollars or Euro but the question is phrased “Do you want to be billed in Dollars? YES or NO.” The selection buttons are reversed on the screen with “no and yes” in much smaller letters.
BANK OF CHINA CREDIT CARD SCAM
Just returned from a trip from Hong Kong and China
In HK, all the charges are in HK $, thus avoiding the 3% Dynamic exchange fee. The only one that charge Dynamic exchange fee is Bank of China subsidiary that process Visa CC transactions.
In China, things gets really bad. Each time I ask to be charged in RMB, it came out to be in US$. After protest, it still come up with a statement saying that I was offer to reject the US$ option (which I did not). The bank say all I have to do is to cross out the option line and all the fine prints and I will be fine and will be in RMB. When I came home and check my statements, it all had the 3% Dynamic Exchange rated added onto my Schwab Credit card.
It is a big scam by Bank of China.. Be careful when you use credit card in China.
All my charges including Shangri-la are in US $ even I crossed out all the options in the US$ option, also wrote big sign as RMB. Is you want, I can eMail you the credit card slips.
I prefer using the ATM and paying with that currency. You get better rates than with a credit card. Plus you don’t have to worry about your CC Number being stolen and used in that country. ATM withdrawals is the way to go.