Avoiding FX conversion scams at checkout
 

Many luxury hotels and resorts abroad post their prices in a currency other than local currency. For example, the Four Seasons Costa Rica posts its prices in USD, and the Four Seasons in Budapest posts its prices in EUR. (Note it's not just FS hotels that do this, but those are two good examples.)

There are legitimate reasons for this practice. It makes it easier for visitors to understand the prices since most guests know the USD or EUR, but might be unfamiliar with the Colon or Forint. It also may provide the hotel a hedge against fluctuations in the local currency.

Many hotels, however, use the practice to squeeze a little extra out of their guests who pay with credit cards. Because they typically need to run credit card charges in local currency, they convert the guest's bill to local currency before charging the guest's card--and they use a rate that is quite favorable to the hotel. The result (ignoring any additional FX fees imposed by the guest's credit card issuer) is often a roughly 3% windfall for the hotel coming directly out of the guest's pocket.

For example, take a hotel that posts its prices (and keeps track of guests' bills) in USD but is located in a country where the local currency is the widget and the market exchange rate is 100 widgets to 1 USD. You run up a $500 bill at the hotel and they use a 103:1 exchange rate. They therefore charge your credit card 51,500 widgets. Your credit card then converts the charge back to USD at the prevailing rate, which is 100:1. You end up paying $515 (plus any additional fees your credit card company tacks on).

You can avoid this little scam by paying with cash or traveler's checks denominated in the same currency as the posted prices. If you hand them five Benjamins to pay your $500 bill, there's no opportunity for them to play conversion rate games.

A friend asked me today whether I thought gift cards would work to avoid the scam as well. Four Seasons, for example, sells gift cards denominated in USD.

This seems like a clever idea, since it allows you to not only avoid the conversion scam, but also to get credit card rewards for your purchase and avoid any credit card FX fees. The downside of course is that you effectively have to prepay for your trip.

FWIW, the FS gift card conditions of use include the following line: "If redeemed at a hotel/resort where local currency is other than U.S. dollars, the hotel's/resort's current exchange rate will be used to calculate credit." I would assume, however, that they are referring to the currency in which your bill is tracked, not the actual local currency, because it would be rather bizarre to have a $500 bill, hand them a $500 gift card, and be told you still owe $15. I imagine they'd have some pretty angry customers.

But I could see how there might be a small chance they use a credit-card-like processing system for gift cards that requires them to run the charge in local currency, in which case we'd be right back where we started. I simply don't know enough about how their gift cards actually work. Do they treat them like cash or like a credit/debit card purchase?

Can anybody confirm whether a USD FS gift card will allow my friend to avoid the FS FX scam at hotels that post prices and track bills in USD?

Another scam is to present your CC bill from the overseas hotel with the charge already converted into your home currency.

Last month I was at the IC in BKK and was presented with a bill for about GBP320. I insisted on paying in Baht but retained the voided charge sheet for interest, to see what the GBP charge on my credit card statement would be.

Answer - a whopping GBP20 less! Now that is using a Nationwide credit card which does not have loading fees and the exchange rate is very good, but none the less a big enough difference to pay for a return limo transfer to the airport.

Are you sure about that? I thought when hotels post their rates in USD or other non-local currencies, that is for informational purposes only and the actual bill is going to be in local currency regardless of the form of payment.

I believe that this topic should not be limited to the Luxury Hotels Forum, as it is more broad-based. Therefore, I am moving this thread over to TravelBuzz and ask that you continue the discussion there.
Obscure2k
Moderator
Luxury Hotels

Agreed

I have an upcoming car rental in SJD which I booked online at a USD rate. I have heard similar stories - on payment they convert the USD into Peso at a very favourable rate to them, and swipe the card. Is there anything I can do with Avis beforehand to assure either I get charged in USD per my rate or at least get a fixed peso rate equivalent which I will be charged.

It is against Visa's terms of conditions for a merchant to require dynamic conversion, but that argument has never stopped them when I protest.

Best thing to do is to document the transaction and complain to Visa, hopefully the merchant will get slapped down.

So what's the answer?

I was at a very reputable large store in Spain (Corte Ingles).

I got the option to pay in Euro's or Dollars.

Which should I have taken? I can see the logic of Dollars if there are purely no other fees.

I tried to do the math at home, but was confused by it.

Portions of the post that previously appeared in this space have been deleted. I would provide you with a reason why, but doing so would likely be against the TOS.

i think harrods in london does the same thing.

This is happening alot in European restaurants. You get given a total in your local currency. Often they will refuse to allow you to have the original amount in Euros. It is definitely becoming more widespread.

I did the math, but I would not stake my life in it...it seemed better to pay in Dollars...i.e. the company was offering this service had less than the 3% fee that the CC will charge.

Over time as a business person you would guess they would not offer this service unless you can save money to the consumer. I was hoping someone had done the formal math.

Many (if not most) credit cards charge an 'international transaction fee' of 1-3% when purchasing in a foreign currency. Choosing to pay in dollars will avoid incurring that fee.

Portions of the post that previously appeared in this space have been deleted. I would provide you with a reason why, but doing so would likely be against the TOS.

As a rule of thumb, always pay in the local currency on your card. The other party is most unlikely to give you a better exchange rate than your card (otherwise you need to be looking for a new card).

I don't remember where, but I remember reading some cards actually charge the 1-3% when purchasing in a foreign country, even if you are paying in the currency of the credit card. So if you buy something in the UK on a US credit card, and the merchant charges you in US dollars, you are still charged the 1-3% on top because it is a foreign transaction.

Here we go.. USA Today article.

I've observed this in Costa Rica. My final charge on my CC was much higher (about 2-3% higher NOTE: - my CC does not charge me fees for the foreign transaction.) This was one of the Hilton chain.

Most of the other transactions such as Gas, restaurants etc showed up
at a reasonable exchange rate..


This happened to me too... it was a car rental in NZ. They asked me
which currency the CC was based in.. then charged me USD based on their
rate conversion. It was not a huge difference, but a few more cents in their
pocket. Charges in local currency were better for my wallet.

Not true, I usually read through the card agreement and all the cards I have that charge the percentage, do charge the fee for all international transactions, regardless of currency.

Or you could just use an AMEX, which will not allow merchants to charge you in anything other than the local currency.

I've had this happen a number of times. Last time in London at a restaurant. They had already converted it to dollars for me to sign. I think it was about 4% extra.

I use a Cap One card for international charges, just for this reason. That doesn't stop merchants from getting even more. Worst one was Bumrungrad Hospital in Bangkok. Either pay the posted price in Baht in cash, or pay 3-4% more when they converted Baht to US Dollars.

When it comes to hotels - US$ pricing can also work in your favor when the local currency goes up against the dollar. A common occurance nowadays.

In all other cases you should always pay in the local currency.

The processing of your card purchase is a three party procedure: the merchant making the sale, the card processor for the merchant and the card issuing bank. Dynamic currency conversion, as the little scam is called, is an arrangement between the merchant and the processor who sells the pos terminal to the merchant and provides the software which can usually convert to usd, canadian, pounds, euro, australian and yen. What they don't tell you is that they are required by the ccard companies visa and mc to provide the invoice in the currency of their country or GIVE YOU THE CHOICE TO ACCEPT THE CONVERSION to dollars or whatever.
There is big money here since the 'normal' rate is 3 percent above bank rate- all kept by processor or split with merchant. A typical contract gives the merchant one percent if he processes over 100,000 pounds annually.

I was on Donegal, Ireland in November and had this happen. I usually use my Cap One card, but left it in the US, so used another VISA. The conversion fee was not charged by my bank (MBNA), so I guess it was a wash.

I learned then to ask when getting the bill "In Euro please".

One night on Irish TV there was a segment on the most successful and innovative Irish businesses for 2007. One of the is the main player in dynamic currency conversion, and it was interesting to see their perspective. I think they said they are in over 100 countries to one extent or another.

MCT

My experiences tell that paying in local currency is usually better, sometimes better than the prevailing exchange rate.

Thank you for sharing this. I would never have known.

Paris and Dublin are hell for it. Unfortunatley you can't trust the cashier to do the honest thing. When I'm in the euro zone I just use cash (book the hotels etc through expedia so the amount is already converted). Sadly visa and mastercard won't do anything as it's a project they created :mad:

Mine go both ways.

Depends upon the card. My experience, at the El Corte Ingles mentioned earlier in this thread, was that I was not charged an international transaction fee since I paid in dollars. YMMV although I would suggest that a dollar-based transaction is not considered an "international transaction".

I have ridiculously bad luck in getting anyone overseas to take my Amex. Particularly here. The few merchants who said they would then said that they needed to tack on a 5-10% (!) service charge in order to do so, as it was "company policy."

I of course asked to see a copy of this policy, and was told that there wasn't a copy around but that this was for sure the policy, no mistake. So then I would say, okay, if you can just get a manager to write this down on a piece of paper and then give me his card, that would be fine.

They'd ask why, and I would say, so I can send it to Amex and ask them why they allow this. And then they would refuse to give me the statement, of course. And in the end, I'd always pay with my Visa. :p

I love Amex. I hate that no one here takes it. :(

I think that in the case of the Corte Ingles it was a USA based dollar transaction (no CC fee). They charged perhaps 1-2% for the conversion. This in theory is cheaper than the 2-3% the credit card would have charged.

While I haven't made a detailed study out of it, I have found that when you pay in dollars instead of the currency of the country where you are shopping, the exchange rate is at least 5% from the inter-bank rate, and I have sometimes seen significantly worse rates. So even if you are paying a 1 - 3% transaction fee, you would still be better off by performing the transaction in the local currency. I am adamant about the transaction going through in the local currency.