business news in context, analysis with attitude

The Los Angeles Times reports this morning that a Superior Court judge in California has ruled that Visa and MasterCard did not properly disclose currency conversion fees to cardholders who used them abroad, and must now refund those fees. The ruling, which covers from February 1996 to the present, could cost the two credit card companies as much as $800 million.

While the judge noted that the fees, at about one percent of each overseas purchase, were neither excessive nor illegal, the card companies crossed the line was in not disclosing them. That violated California law. Visa, which is based in California, has been ordered to pay refunds to people regardless of where they live; MasterCard, based in New York, must only make refunds to Californians.

A hearing later this month will determine specifics about who will get the refunds and how they will be distributed.

Both Visa and MasterCard say they will appeal the ruling.
KC's View:
While this case is not related to the antitrust case against MasterCard and Visa USA that has been brought by 4 million merchants, a case in which jury selection should begin April 21, it certainly suggests that a chill wind is blowing against the credit card companies.

The retailers, led by Wal-Mart, claim that Visa and MasterCard force them to accept their debit cards by requiring their acceptance as a condition for continued use of their credit card systems. The debit cards issued by MasterCard and Visa have higher transaction fees, and therefore cost the retailer and the consumer more money.

In the foreign conversion rate case, nobody is arguing the appropriateness of the charges, just that they need to be disclosed.

In the debit card case, the legitimacy of the companies’ policies is very much at issue. And we think that you could make a pretty good argument for the notion that consumers don’t know about the high transaction fees, as well.