If you use U.S. dollars to pay the U.S. subsidiary of an overseas company for a product stored in the U.S., is that a foreign transaction?
That question arose after Jay Berman, 74, of
Molton Brown has stores in New York, and its products are carried by a variety of U.S. retailers nationwide. It has a distribution facility in Plainfield, Ind., which explains why Berman's online order included a 9% Indiana sales tax.
"The cosmetics originally came from England, but the transaction did not," he told me. "It was all in dollars, and the products were shipped from Indiana."
Berman's situation has far-reaching implications in today's global economy. If a car is made in Japan, say, but sold at a U.S. dealership, is that a foreign transaction? What about an appliance manufactured in China but sold at Best Buy?
Elon Pollack, a Los Angeles lawyer who specializes in customs and trade issues, said there should be no confusion about transactions such as these.
"You're buying an imported product domestically," he said. "How can this be in any way considered a foreign transaction if I'm paying a state sales tax? It makes no sense." No, it doesn't.
But when Berman complained to Bank of America, the bank responded with an email saying that the foreign transaction fee applies to purchases in other currencies. BofA instructed Berman to contact Molton Brown and "ask them about the currency used on this transaction."
He did so and was informed by a company service rep that receiving goods from its U.S. distribution facility is the same as buying from a U.S. store.
So Berman contacted BofA again and passed along the retailer's comments. He highlighted the $10.80 he paid in Indiana sales tax as proof that this was a domestic transaction.
BofA stuck to its guns.
"It is possible that the merchant processed the transaction as a foreign transaction due to the supplier being a merchant out of the country," the bank replied.
"Regrettably, we are unable to confirm with the merchant as to why this transaction was processed as a foreign transaction as they would be the ones to make that determination," it said.
The bank once again told Berman to take up the matter with Molton Brown.
Considering that the dispute was over a charge of $3.92, Berman knew this was getting kind of ridiculous. But it was hard to shake the feeling that he was being hustled.
As Berman said to me, if he'd used his plastic to buy a $20,000 car that was made abroad but sold locally, "would I have to pay a $600 foreign transaction fee?"
The principle seemed worth fighting over.
Most travelers know to be careful about using credit cards overseas. It's not uncommon for the big card networks such as Visa and MasterCard to charge 1% for foreign-currency transactions and for issuing banks to tack on an additional 2% because, well, what the heck.
Betty Riess, a BofA spokeswoman, said that "a foreign transaction fee applies when the transaction is made or processed outside of the U.S. This includes online purchases from foreign merchants that are processed outside the U.S., which is what happened in this case."
Christina Calbi, a spokeswoman for Molton Brown, stressed that the 3% charge was the bank's and not the company's. But she acknowledged that even though a product already may be in the country, Molton Brown's online purchases are processed in Britain.
"Molton Brown's merchant bank does reside in the U.K. as it is part of a singular global platform that was put in place to ensure a consistent customer experience across the world," Calbi said.
Here's what's screwy, though: At no time was Berman's money converted from dollars into pounds. Calbi said the transaction remained in U.S. currency from start to finish.
So what did that extra fee cover?
BofA's Riess said only that "there are additional costs for processing and settling international transactions." She declined to specify what those additional costs may be.
In a computerized and global economy, processing a credit card transaction in a single currency, regardless of where the processing occurs, would seem to be a negligible cost, perhaps running only a few cents.
Let's call this what it is: a blatant money grab by banks and card companies tacking on unwarranted fees as a percentage of a purchase.
What do they care whether a dollar-denominated transaction is processed in Indiana or India?
Moreover, how many of a bank's own operations are outsourced abroad? Mortgage processing, loan servicing, customer care and other operations might now take place in India, the Philippines and elsewhere.
Why is this OK for them but not for consumers?
Riess defended BofA's levying a foreign transaction fee by observing that most other banks do it — the industry's favorite justification for bad business practices.
In reality, the only thing "foreign" about this foreign transaction fee is that it seems to be in another language — the language of greed.
And the banking industry is fluent in that tongue.