Foreign exchange rate rip-offs & how to avoid them

By Christopher Elliott

As Jay Berman and his wife were checking out of the Henley House in London last month, a clerk asked if they wanted to pay their bill in dollars. It seemed like a good idea at the time, because they'd avoid Bank of America's 3% foreign transaction fee.

Or so they thought.

"Looking at my account a few days later, I saw I had been assessed the fee anyway," he says. Turns out his credit card's foreign transaction fee applied to any purchase made outside the United States, even if it's in dollars.

"If a transaction is paid in dollars, how does it matter whether I'm in Los Angeles or London?" he wondered.

Berman, a writer based in Manhattan Beach, Calif., called Bank of America (www.bankofamerica.com), and a representative confirmed that the $24 fee on his $822 fee was for real. E-mails to the bank asking it to reconsider the fee went unanswered.

With summer in full swing, so is one of the most enduring scams in the travel world: the foreign exchange rip-off. While most of it happens quietly behind the scenes in this day of electronic transactions, some of it is not so subtle.

Consider what happened to Ken Barnes and his wife in Rome recently. They needed to change their dollars for euro.

"I asked a waiter in a restaurant where is the best place to go and he said go to Western Union," he recalls.

So that's where he went. He handed the teller $600, and received €349.

"I looked at it, telling him that seemed like too little," he recalls. "He said that was the amount."

Barnes went to another bank and asked it how much $600 would get him. It offered €550.

"I immediately went back to Western Union and told the teller that this wasn't right," says Barnes. "He said, 'Read the terms,' and went to another part of the room and brought back to me a sign that said the 'commission fee' was 19.7%. This sign was not visible to me when I did the original transaction."

Does it really cost that much to convert your greenbacks?

Western Union's terms are clearly disclosed on its site, and it is unambiguous about its intentions. It makes money from your money.

I asked Bank of America about its foreign transaction fee. A spokeswoman said the surcharge applies to purchases made outside the U.S., whether the transaction is made in foreign currency or U.S. dollars. That's a relief; some banks actually charge the fee even if the transaction is happening in the United States and in dollars, if you're dealing with a non-U.S. based company.

"The fee is applied based on increased costs associated with these types of transactions and is fairly standard in the industry," she said in an e-mail.

I wondered what kind of increased costs B of A, which is a company with an international presence, had to contend with. After all, no currency was actually being exchanged -- the customer simply crossed an international border. So I followed up with a few questions, asking her for details on its increased costs.

I'm still waiting for a response.

Berman, the customer who had to pay the surprise fee, doesn't have to wait for an answer. He already has one of his own: "I wonder if Bank of America is starting to see why they don't head everyone's popularity list."

(After I contacted B of A on his behalf, it responded to him in writing, reiterating that the fee was an industry standard and that he'd be charged correctly.)

Avoiding these ridiculous fees is fairly easy. Some credit cards don't have them (B of A actually offers cards with no foreign transaction fee, as does Capital One). Many banks also have debit cards that can be used at foreign ATMs to withdraw cash without paying a hefty transaction fee.

Mostly, avoiding those currency-exchange storefronts at airports and train stations, which prey on fatigued tourists, is the best way to avoid a currency exchange rip-off when you travel abroad.