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.