An appeals court in Illinois recently threw out a case against American Express regarding the way that AmEx discloses foreign transaction fees — or does not disclose as the case may be.

The trial court granted the defense summary judgment motion because plaintiff had no evidence that Amex represented the $3 transaction fee to be its net profit, id., at 14-15, and because plaintiff failed to prove that he suffered any damage, id., at 17. The appellate court affirmed.

The class action complaint alleged that, in addition to the posted $3 service fee for each currency exchange, Amex profited from the “float” between the rate it paid for the foreign currency and the rate at which it sold the currency. Sanchez, at 2-3. The appellate opinion quotes from the class action complaint at page 3 as follows: “In addition to profiting by charging each of its customers a ‘fee’ for the [foreign currency exchange service], American Express also profits by skimming the difference between the exchange rate it receives and the exchange rate it uses to convert a customer’s currency. The difference between the two exchange rates is a hidden, undisclosed charge it assesses to each of its customers that use the Service (hereafter ‘the Money Skimming Scheme’).” [read more...]

Several of our readers have complained that they often find American Express charging more than the 2% they claim to charge in their fee disclosures. I’ve also written about this discrepancy here. By looking at an AmEx statement after making foreign purchases and calculating the fee charged, I’ve found that American Express has a tendency to charge 1% more than the wholesale rate. This often makes the total fee charged by American Express for foreign transactions to be be 3% or more.

American Express claims that the rate they charge is: “(a) the highest official conversion rate published by a government agency, or (b) the highest interbank conversion rate identified by us from customary banking sources, on the conversion date or the prior business day….” As many customers find, AmEx is very good at finding the highest rate possible to charge customers with. The problem is, that AmEx doesn’t necessarily purchase the currency they are selling at the “highest official conversion rate.”

As the lawsuit alleges, American Express actually does a pretty good job of purchasing currency at a low rate. Hidden fee or not, this lawsuit confirms that American Express credit card users can end up paying more than the 2% they thought they were for foreign purchases.