Credit Card Firms Ordered to Pay Refunds

Hundreds of thousands of consumers -- including many Californians -- who used their MasterCard and Visa credit cards while traveling overseas may be due $800 million in refunds, thanks to a court ruling Tuesday in Oakland.

Alameda County Superior Court Judge Ronald Sabraw ruled that Visa International Inc. and MasterCard International Inc. failed to adequately disclose currency conversion fees charged to cardholders. The ruling covers fees charged from Feb. 15, 1996, to the present.

Those fees, which add about 1% to the cost of an overseas purchase, are neither illegal nor excessive, according to the court ruling. However, because the companies did not clearly disclose the costs, under California law they must refund them, Sabraw ruled.

Sabraw’s ruling didn’t specify how much the refunds should be. During the trial last year, the plaintiffs had sought as much as $500 million, although attorneys said Tuesday that the companies would have to refund as much as $800 million. A MasterCard executive disputed that estimate.

A hearing is scheduled for later this month to determine who will get refunds and how they will be distributed. In his ruling Tuesday, Sabraw ordered Foster City, Calif.-based Visa to refund fees to any cardholder who paid them, regardless of where they live. New York-based MasterCard was ordered to refund fees only to customers who live in California.

The refunds could be credited to customers’ charge accounts, or provided through checks or vouchers.

Both Visa and MasterCard said Tuesday that they will appeal the ruling.

MasterCard general counsel Noah Hanft called the judge’s ruling “seriously flawed in terms of both fact and law.”

“Not only is it illogical for [the judge] to say we somehow deceived American consumers by providing them what he agrees are the best possible rates for currency conversion when they buy goods overseas, but he’s also sending a chilling message to the business community” about doing business in California, he said.

Visa spokeswoman Cheryl Heinonen said Visa’s currency conversion process provided consumers with significant value.

“The judge himself acknowledged that Visa’s process is uniquely beneficial to consumers as Visa cardholders receive currency conversion rates that are favorable to their other conversion options,” Heinonen said. “We intend to appeal this ruling.”

The lawsuit, filed under the unfair competition section of California’s Business and Profession’s Code, focused on how Visa and MasterCard handle overseas charges by cardholders.

Visa and MasterCard say they are able to get better exchange rates on overseas transactions than consumers could get on their own. Even with the 1% processing fee tacked on by the card companies and the exchange fees charged by the banks that issued the cards, account holders still come out ahead, the companies claim.

The companies also said the fees are properly disclosed.

Attorneys representing the plaintiff in the case, Bay Area resident Adam Schwartz, disagree. They say customers shouldn’t be charged fees for currency exchanges because the exchanges are only paper transactions -- the credit card charges, while initially recorded in foreign currency, are converted to dollars before the customer is billed.

Even if the charges are valid, the card companies should be required to disclose them to their customers, said the plaintiff’s attorney, Allan Steyer of Steyer Lowenthal Boodrookas Alvarez & Smith in San Francisco.

Bloomberg News and Reuters were used in compiling this report.