Visa, MasterCard May Have to Pay Fee Refund

Visa and MasterCard customers, including many in California, could get $500 million if a state judge in Oakland holds firm that the credit card companies must refund a fee they tack on to foreign-currency transactions.

In a preliminary decision, under seal, Alameda County Judge Ronald Sabraw ruled that the companies have not properly disclosed a 1% fee, according to parties on both sides of the dispute.

Sabraw said the fee, which credit card firms say covers the cost of providing service overseas, is legal. However, he ruled that because it had not been properly disclosed, the companies should refund the fee dating to 1996, four years before the suit was filed.

The suit is in state court, but because Visa International Inc. and Visa USA Inc. are based in Foster City, Calif., any judgment could apply to cardholders nationwide. MasterCard International Inc. is based in New York, so any final ruling could apply only to cardholders in California.

“It’s important that consumers know what they’re being charged,” said lawyer Patrick Coughlin, who sued the credit card firms on behalf of a customer.

The total refund could hover around $500 million, based on estimates by Coughlin’s law firm. MasterCard would be responsible for as much as 20% of that payment.

The two firms earned a total of at least $240 million last year from foreign-exchange fees from cards issued in the U.S., according to industry newsletter Nilson Report.

Executives with both MasterCard and Visa have lambasted the preliminary ruling and said they would appeal.

“Visa pioneered today’s currency conversion system that protects consumers from exorbitant rates when traveling abroad,” said Stephen C. Theoharis, a senior vice president with Visa USA.

“In essence, the court is penalizing Visa for offering consumers the best deal in town.”

Sabraw issued his decision last week. Schwartz vs. Visa International is next scheduled for his court March 4.